RWD LFP Tesla Model Y Could Slash Price By $4,850, Driving US Sales To The Next Level

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Cleanerwatt was the first to notice that Tesla just got approval for a new rear-wheel-drive (RWD) Model Y using lithium-iron-phosphate (LFP) batteries that will likely be very affordable. Who is a less expensive RWD LFP Tesla Model Y targeting, and what does it mean to the entire US automotive market for the rest of 2023 and beyond?

As I predicted in December, Tesla has to radically improve the affordability of the Model Y to meet its aggressive sales target. It has already cut the effective price of the Model Y Long Range by $15,500 (from $65,990 to $50,490), provided the US Treasury with documentation to qualify for the $7,500 tax credit, and introduced a Model Y Standard Range AWD that is $2,750 less expensive. Those 3 changes lower the starting price by a whopping $25,750, or 39%!

That has helped double sales since last year and made the Tesla Model Y the best selling vehicle in the world and the best selling passenger vehicle in the US (but behind the Ford F-150).

For many companies, that would be enough success that they would rest on their laurels for a few months and enjoy their victory, but that isn’t how Tesla works.

EPA Info

Looking at this EPA filing, you can tell this is all about value. It has a single 198 kW permanent magnet motor that, looking at this older submission, looks like it is usually used as the rear motor of the Model Y Long Range. Using a permanent magnet motor may slightly increase the cost over a cheaper induction motor, but then its unrounded efficiency is 175 instead of the previously available AWD Model Y Standard Range at 167, a 6% improvement. Although they did test with different size batteries, it appears the battery will be 56 to 63 kWh in size vs. the Standard Range AWD size of 71.6. This would be a 9% to 12% smaller pack, but with 6% better efficiency, range would only be 3% to 6% less or 8 to 16 miles less than the Standard Range AWD’s 279 range, so that’s a prediction of 263 to 271 miles, or a bit beyond Elon’s stated minimum of 250 miles range.

Who Is It For?

This model will be best for people either driving in a local area or who don’t mind stopping a little more often to charge. It won’t be as good in the north, both because it doesn’t have the all-wheel-drive that improves traction in the snow and also because it will charge more slowly when the battery is cold. Luckily, Tesla’s battery management system means this isn’t too big of a penalty, but you should watch Bjorn’s video above if you are thinking of buying an LFP Tesla and live in an area that gets very cold.

An0ther point to consider is they recommend you charge LFP batteries to 100% every day, vs. the 80% or 90% recommended for nickel-based batteries. This means 100% of a 270-range battery could be more than 80% of 330 miles, which is 264 miles. It is also expected that LFP batteries will last twice as many cycles. So, for someone who has a long commute and puts a lot of miles on their car every year, and who wants a car that will last a long time, this might be an excellent choice.

If Tesla allows owners to use their batteries to either power their homes or even sell power back to the utility, the LFP’s ability to withstand more cycles before degrading significantly will be even more valuable.

This will be a perfect second car for people who want a lot of room but have another car with longer range for long trips. There are a lot of people who bought their first Tesla in the last year or two and are ready to buy another for a spouse or child, but who don’t want to spend another $60,000 for another car — and also don’t want to buy another gas car now that they have tasted the fruits of driving electric.

Predicted Pricing

The 2021 RWD Model Y that sold for as little as $39,990 in February 2021 before being discontinued only had a range of 244 miles. I looked at the price difference in Canada between the Model Y Long Range and the Model Y Standard Range RWD, and it is $10,000 Canadian or about $7,600 in US dollars. That would put the starting price at about $42,890, or $4,850 less than today’s entry-level Standard Range AWD. With savings of about a thousand dollars from a smaller battery pack, another thousand because it is using cheaper lithium-iron-phosphate (LFP) batteries, a couple thousand less since it doesn’t have the front motor, and a thousand from profit margin, we get to a $5,000 lower selling price. This would be only $2,650 more than the base Model 3 that has a similar 272-mile range.

Conclusion

As we get closer to the new year, the $7,500 tax credit becomes more powerful, since buyers only have to wait a shorter and shorter amount of time to receive it, instead of 9 or 12 months earlier in the year. I think this will increase demand for all electric cars eligible for the credit a bit. In addition, several states have enhanced their incentives, especially Colorado, which has some of the best incentives in the nation!

This means the Model Y RWD will have a much lower cost of ownership than gas cars like the Toyota RAV4 and Honda CRV (which start at $28,275 and $29,500, respectively), even though the Model Y’s net price after incentives will be between $31,000 and $36,000, depending on your state. To see how a Tesla with a higher price tag can be competitive with a gas car at less than half the price, see my recent article titled “Tesla Model 3 Lifecycle Cost Nearly Matches The Cheapest Car In America!” Tesla will have no problem gaining massive share from Honda and Toyota if it releases this new model and ramps up production significantly.

If you want to take advantage of my Tesla referral link to get Reward Credits, here’s the code: https://ts.la/paul92237 — but as I have said before, if another owner helped you more, please use their link instead of mine. If you want to learn more about Tesla’s new referral program, Chris Boylan has written an excellent article on it.

Disclosure: I am a shareholder in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], Hertz [HTZ], and several ARK ETFs. But I offer no investment advice of any sort here.