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Tesla has responded to increased competition in the electric-car segment by cutting into its large profit margins, sending ripples across the auto industry – and delivering customers big savings.

US electric-car specialist Tesla has been accused using the huge profit margins on its vehicles to start a price war among its rivals – in the process delivering big savings for buyers.

Tesla has cut the price of its electric cars across the globe by up to 20 per cent.

The move saw sales spike by up to 500 per cent in one month in parts of China following a 13 per cent price reduction in that market, Car News China reports.

While the price of the Tesla Model 3 sedan was lowered by ¥36,000 ($AU7530) in China, in the UK the Tesla Model Y SUV dropped by £8000 ($AU14,000).

Germany saw the greatest price reduction, with Motor1 reporting the Tesla Model Y SUV was slashed by €9100 ($AU14,060).

On top of the price discount, Elektrek reports the Tesla Model Y now qualifies for a further €6750 ($AU10,430) subsidy from the German Government, effectively discounting the electric SUV by almost $AU25,000.

In the US, prices dropped by as much as 20 per cent, allowing some models to qualify for a $US7500 ($AU10,660) federal tax credit.

According to news outlet Reuters, Tesla pocketed between $US11,442 and $US15,653 ($AU16,240-22,250) for each car sold in 2022 – and the electric car company is now able to comfortably cut into those profits to help bolster sales as the competition heats up.

The US car-maker enjoys more than double the average profit margin of vehicles sold by Volkswagen, four times the profit found on each model sold by Toyota – the world’s largest car company by volume – and more than five times the profit for each Ford sold, Reuters analysis shows.

Only Chinese newcomer BYD can boast profits close to that of Tesla’s, walking away with as much as $US14,921 ($AU21,180) on each car sold.

High demand and parts supply constraints over the past three years have meant manufacturers have been raising the prices of their models – including Tesla.

Now, with an influx of battery-powered models from other brands, Tesla has reversed direction and cut prices across its range – providing greater incentive for potential buyers, while also increasing pressure on its rivals.

“These price cuts are likely to make business even more difficult, just as they are attempting to ramp production of EV offerings,” Bank of America analyst John Murphy told The Wall Street Journal.

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Ben Zachariah

Ben Zachariah is an experienced writer and motoring journalist from Melbourne, having worked in the automotive industry for more than 15 years. Ben was previously an interstate truck driver and completed his MBA in Finance in early 2021. He is considered an expert in the area of classic car investment.

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