Tesla Can't Ignore GM's Desperate Move

See if you can spot the problem: General Motors slashed prices on its Chevy Volt on Monday. Tesla Motors hit yet another all-time high on Tuesday.

GM became the latest automaker to make its plug-in vehicles cheaper for consumers. The $7,500 federal tax credit on qualifying electric vehicles hasn't been enough to get consumers to pony up for Volt, so the automaker is shaving another $5,000 off its sticker price.

Someone can now get a shiny new Volt for as little as $27,500 after the tax credit, and that's before we get to any haggling on behalf of astute buyers. There are plenty of Volts collecting dust on the showroom, so who knows how low dealers are willing to go to make room on their lots for cars that are actually selling.

If you don't want to buy a Volt, leases can now be had for as little as $299 a month.

Volt's price cut follows recent price cuts by other car manufacturers. Ford shaved $4,000 off the price of its all-electric 2014 Focus last month. A month before that we had Honda slash the lease rate on its Fit EV from $389 to $259. Earlier this year it was Nissan moving to lower the sticker of its iconic Leaf by $6,400.

Against this backdrop, Tesla actually bumped its prices higher a few months ago.

We've always known that electric vehicles will get cheaper over time. As the technology scales and the now costly batteries get cheaper, rides will become more accessible. Even Tesla CEO Elon Musk has publicly discussed putting out a cheaper car in a few years.

However, prices are being cut now, because drivers just aren't buying them.

GM sold fewer Volts last month than it did a year earlier. The Wall Street Journal leans on data from industry group Electric Drive Transportation Association that estimates only 7,442 battery-powered and plug-in-hybrid cars were sold in this country last month.

Tesla is the undisputed darling here. It's the one with a waiting list because it can't make cars fast enough. Someone who wants a Tesla isn't going to settle for a Leaf or a Volt. However, as the entry-level cars get cheaper through this recent wave of automaker price cuts it will take greater justification to pay up that much more for a Model S.

Ford, Honda, Nissan, and now GM have had to make their plug-in vehicles more affordable. Tesla stands alone as the class act in this niche, but how big is the market for high-end cars when range anxiety and the inconvenience of having to install specialized electric outlets and plug and unplug cars on every trek weigh on the psychology of the plug-in market?

Tesla's in a good place right now, but given a lofty market cap that mandates reaching out to the mainstream market soon it can't ignore the price war at the low end.

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The article Tesla Can't Ignore GM's Desperate Move originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz owns shares of Ford. The Motley Fool recommends Ford, General Motors, and Tesla Motors. The Motley Fool owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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