A driver uses a Tesla Supercharge station in Corte Madera, California, U.S., Thursday, March 2, 2023.

David Paul Morris | Bloomberg | Getty Images

Tesla cut prices on its two most expensive models in the US, the Model S and Model X, in a renewed effort to boost demand for its aggressively discounted cars.

The Tesla Model S now starts at $89,990, according to the company’s website, a drop of about 5% from its previously listed price. Model X starts at $99,990, down 9%.

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For the high-end “Plaid” versions of the Model S and Model X, car buyers can now expect to pay $109,990. That’s down 4% for the Model S Plaid and 8% for the Model X Plaid.

Tesla shares were down less than 1% in morning trading on Monday.

It follows a series of aggressive discounts from the company in recent months. In January, Tesla cut the prices of its new cars by as much as 20%, making the vehicles more affordable and likely eligible for federal tax credits in the US

The latest price cut is unlikely to be related to the EV tax credit that was introduced in President Joe Bidens Inflation Reduction Act, as they remain above the $55,000 threshold to qualify for up to $7,500 to purchase new vehicles.

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The pace and frequency of Tesla’s price adjustments goes beyond what incumbent automakers have attempted in the industry, where the base price of an in-stock vehicle is still called a “sticker price.”

EV price war

This has sparked a price war among automakers competing to lower their prices in an effort to attract more customers and boost sales. After Tesla’s price cuts in January, Ford cut prices on its electric Mustang Mach-E crossover by up to 8%.

Musk has shifted Tesla’s focus recently to lowering prices to stimulate demand for its products.

On the company’s fourth-quarter earnings call in January, he said Tesla saw orders that nearly doubled the production rate. “These price changes really make a difference for the average consumer,” Musk said at the time.

EV arms race

“The price cuts that Tesla has already implemented globally have catalyzed demand by 30% out of the gates as the latest price cut is another smart move,” Dan Ives, managing director of equities at Wedbush Securities, told CNBC via email.

“This is an electric car arms race and Tesla has the margins to make price cuts and still be far above other automakers. In this economic haze, Tesla needs to rip off the Band-Aid and lower prices and the street will like it.”

To make discounts of these proportions, Tesla must match them with production cost reductions. It’s a goal the company has worked hard to achieve, with efforts to cut some expenses in its supply chain already underway.

Last week, a Tesla executive said the company was developing an EV engine that could be built without rare earths — which are essential to the engines used in electric vehicles — citing the need to lower costs and environmental risks that come with mining those minerals.