Tesla Inc (TSLA.O) has adjusted financing rates for some of its U.S. models, making its vehicles more affordable as promotional discounts fall, good news for buyers and investors.

The electric car maker recently raised its promotional financing rate for Model 3 from 1.99% per annum for 72 months. However, loans with terms of less than 60 months still offer a 1.99% rate.

But the base financing rate for most loan terms for Model 3 and Model Y fell by about 0.4 percentage points to 5.59%.

The decline in funding rates is partly due to lower benchmark rates: Today, the five-year Treasury yield is about 3.7%, down about 0.2 percentage points from the beginning of the year and down from 4.7% in the spring.

A 0.4 percentage point decrease would affect monthly payments for most loan terms by just a few dollars, while an increase to a 2.99% promotional rate would likely add about $20 to monthly payments.

The changes aren’t large, but they’re small signs of normalization in the electric-vehicle market, which has been struggling in recent years with increased competition that has put pressure on new-car prices, and higher interest rates that have made it more expensive to buy a vehicle on finance.

That creates a double whammy. According to Kelley Blue Book, the average price of an electric car in the U.S. will be about $56,000 in July 2023, compared with about $66,000 in July 2022. There are more lower-priced models on the market today, but this $10,000 drop reflects pricing pressures in the industry.

Pricing pressures lead to lower margins. Tesla's operating margins are expected to be around 6% in the second quarter of 2023, compared with nearly 15% in the second quarter of 2022.

While the situation hasn’t completely recovered, it’s improving. According to Kelley Blue Book, the average incentive for electric vehicle buyers in July 2023 was about 12% of the transaction price. That’s a very high percentage, compared to the average incentive for all cars, which is about 2.4% of the transaction price.

Overall, the data paint a picture of slowing demand growth amid increasing competition.

In 2023, U.S. electric vehicle sales increased by 46% compared with 2022. In the first half of 2024, sales growth slowed to about 7% compared with the same period last year. As buyers' choices expanded, Tesla's U.S. sales fell by about 10% in the first half of 2024. In the first half of 2024, more than 20 models sold more than 5,000 units, while 20 models achieved this sales in the same period last year.

Tesla shares are down about 14% this year as of the close of trading on Friday. Slowing sales growth has weighed on investor sentiment. However, Wall Street expects sales growth to pick up in the second half of the year.

Analysts expect Tesla to sell about 950,000 vehicles in the third and fourth quarters of 2024, up from 831,000 in the first half of 2024 and 920,000 in the second half of 2023. Lower interest rates will help Tesla achieve those goals.

The article is forwarded from: Jinshi Data