Tesla's price war: Model Y Standard, Model 3 face uphill battle

Tesla's lower-priced versions of its staple Model Y SUV and Model 3 sedan face an uphill battle in the region where Elon Musk's company arguably needs help the most: Europe.

Unveiled on Tuesday, the $39,990 Model Y Standard and $36,990 Model 3 will join a European market already crowded with budget electric vehicles (EVs), with European and Chinese brands offering more than a dozen models below $30,000, with plans for more to come.

That's in contrast to the United States, where only one EV, the Nissan Leaf, falls into that price range.

"The competition in this market is fierce," said Sam Fiorani, vice president at research firm AutoForecast Solutions, adding the array of EVs in Europe priced below Tesla's cheaper Model Y and Model 3 could hamper their prospects.

Declining market share and pricing pressure

Tesla, which argues that its sometimes-higher prices are justified by superior quality and features, has seen its European market share nearly halved to about 1.5 percent since 2023, when the Model Y was the region's best-selling car.

Analysts attribute the decline partly to an ageing product lineup and to a backlash by some consumers against Musk for his support of far-right politicians.

In the United States, the EV market is expected to contract in the coming quarters following the September 30 expiry of a longstanding $7,500 tax credit for buyers. Even if Tesla's more affordable cars can claw back some market share, Musk has said the company could face a "few rough quarters" if overall U.S. demand stalls as expected.

In China, Tesla's new releases remain significantly more expensive than domestic rivals, such as BYD Company's Yuan Plus and SAIC-GM-Wuling's mini EVs, which dominate the world's biggest EV market.

In Europe, Tesla is competing with many cheaper rivals, including the BYD Dolphin Surf, which starts at 23,000 euros ($26,830), the Dacia Spring at 16,800 euros, and the Citroën e-C3 SUV at 23,300 euros. And more are coming.

Last month, Volkswagen announced plans for an ID.Polo compact hatchback EV for under 25,000 euros next year.

(With input from Reuters)