Tesla's Excess Model Y Capacity Will Drive Prices Down Further
Tesla has more Model Y capacity than Toyota's global Corolla sales
Tesla’s Model Y Prices Likely To Fall Further in 2023
In its Q1 2023 Shareholder Deck released on April 19th, Tesla raised its Berlin Model Y capacity to “>350,000”, which had been listed as “>250,000” up until Q1.
Figure-1: Tesla Raises Texas Model Y Output in Q1 2023
Last August, Tesla increased its Shanghai Model Y capacity by 27% from 11,000 units per week to 14,000 units per week, or roughly 700,000 annually. Rounding up Texas and Berlin by 50,000 each gets us to a total of 1.75 million units of global Model Y capacity (see Figure-2).
This is 46% of 2022’s global SUV market priced between $45,000 to $70,000 (see Figure-3) and only the Toyota Corolla has such high levels of capacity versus its addressable market. Unlike the Model Y, however, the Toyota Corolla is a low-cost compact car that sells not only in developed markets, but also in emerging markets.
Figure-2: Tesla’s Model Y Global Capacity by Factory
Figure-3: Tesla Model Y Production Capacity Vs 2022 Demand
The compact SUV market is expected to become a lower-margin segment of the auto industry, given all the new model launches in this segment (see Figure-4). There will be at least 29 new SUVs launched in 2023 and another 31 in 2024, while the 27 new SUVs launched in 2022 go into full production this year. It’s clear that the compact SUV market is becoming more crowded than other segments and the huge supply should lead to lower prices.
Figure-4: Compact SUV Model Launches Through 2025
Note: Columns list by model year, so model year 2023 was launched in 2022. Pink shading indicates high-end compact SUV models.
The Toyota Corolla sold 1.34 million units in 2022, at an average price of $23,000. How can the Tesla Model Y sell 1.75 million at $47,000? It probably can’t, given the easing in the chip shortage which will speed up the supply of new models hitting the market this year and next.
This points to either lower prices for the Model Y or lower capacity utilization at Tesla’s Model Y factories. Both will have a negative impact on earnings. The longer term question is what Tesla does with all of the Model Y capacity it built up. Shanghai’s 700,000 of annual capacity is clearly too large for China’s market (the Model Y price in China has been cut by 17% via four price cuts since last October) and exporting to Europe is now meaningless as Tesla has its new German factory with 400,000 units of Model Y capacity to ramp up. Only 78% of Model Y exports from Shanghai in 2022 went to the EU.
The same could be said about Tesla’s 1,050,000 units of Model Y capacity in the US. Is there really that much demand for an aging model? It is doubtful, given the slew of new rival models coming to market, and in the worst case scenario, Tesla may be forced to close its Fremont factory to deal with the excess capacity.
Figure-5 shows all of the models used in calculating the size of the Model Y’s addressable market in 2022 based on compact SUVs priced between $45,000 and $70,000. The Model Y is priced between $46,990 to $53,990 in the US but much higher in the UK and certain European countries.
Figure-5: The Global Compact SUV Market in 2022 ($45K-$70K Price Range)
Not sure the caption to the table of new crossovers is correct; the pink shaded entries are what BofA calls a luxury car, and plenty of unshaded ones are EVs. Also 2024 includes an entry for Apple Cart EV/AV—presumably they meant a car from Apple (which isn't happening)?
You have to factor in model 3 capacity. SH and CA are 3 and Y combined. I envision they would lower prices of model 3 further as well, hopefully to ~30K after credit.