Tesla price increases used to be a somewhat infrequent and relatively innocuous occurrence. Not anymore. So far in 2021 the Model 3 has increased in price (MSRP) 23%. The Model Y is not far behind at a 20% price hike!

What’s behind the Tesla price increases? Should we expect to see more? Does this effect existing orders? Are other automakers increasing their prices this much? Let’s address this and more below!

Tesla Model 3 Price Increases

First, let’s start by simply looking at the data.

Tesla has not been shy about increases the price of their most affordable vehicle (the Model 3). Below is a table of Model 3 Standard Range Plus (SR+) base MSRP from February of 2019 to today.

Since February of 2019 there have been 18 MSRP changes for the Model 3 SR+. 3 have been price decreases, 15 have been price increases. As you can see, just in the past few months the Model 3 has increased in price by $5,000.

This may have something to do with the fact that new EV tax credits are likely to increase consumer demand in 2022.

Tesla Model Y Price Increases

Tesla’s Model Y was first available for purchase in March of 2019. Since then the most common version, the LR-AWD (long range all wheel drive) trim has seen its price increase considerably.

Similarly to the Model 3, the Model Y has seen both price decreases (2) and price increases (14). The Model Y has increased in price more than $5,000 in the past few months. This is likely due to the imminent EV tax credits that will be passed as part of the Build Back Better bill.

Are other automakers raising their prices as much as Tesla?

No! While we expect automakers to increase their base MSRPs considerably in 2022, we have yet to see any other manufacturer increase them as much as Tesla.

Toyota has come closest with their nearly 20% price increase for the newly redesigned 2022 Toyota Tundra, however that is a brand new redesign. No other automakers has increased their mid-year production models MSRP anywhere near as much as Tesla has.

Why is Tesla increasing their prices so much right now?

There are two primary factors as to why Tesla is increasing their MSRP so aggressively right now. The first relates to ongoing supply chain disruptions and the chip shortage. The second has to do with new EV tax credits that will most certainly drive an increase in Tesla demand.

The ongoing chip shortage has impacted all automakers, and Tesla has not been immune to it. While their production numbers have been healthy (especially relative to peers), Tesla has struggled to produce vehicles to their specifications. Earlier in 2021 Tesla silently began removing some features and functionality from their vehicles because of a lack of chips.

There is obviously a “supply side” issue thanks to global supply chain struggles and the chip shortage, but what about demand?

Demand for new Teslas has been healthy, and it should only increase in 2022. New EV tax credits will increase Tesla demand. Previous EV tax credits no longer apply to Tesla, however the credits that will be available in 2022 will. It makes sense that Tesla is increasing their prices right now, because when consumers get $7,500 (or more) in tax credits from the government, they’ll still feel like they’re getting a great deal.

Pair a decreasing supply with an increase in EV demand, and you can start to see why Tesla is proactively raising their prices. Not to mention there is higher inflation than prior years, and you can begin to fully comprehend why we’ve seen Tesla prices increase as much as they have.