Supply and Demand: Tesla’s Model 3

Tesla is one of the world’s most foremost companies in the realm of electric cars. Having seen unprecedented success, with some of the most reliable electric cars on the market, the company seemed unstoppable (Bartlett). Nowadays, however, they seem to be slowing down. Recently, Tesla has run into a number of troubles, including an immense disparity between units requested and units available. This disparity in supply, according to the principle of equilibrium price, ultimately affects the demand and price of a Tesla car.

As equilibrium price can be defined as “the price at which the quantity of a product offered is equal to the quantity of the product in demand” (Dictionary.com), and thus can be affected by growth or decline in either supply or demand. Tesla’s Model 3 is one of the best-selling cars in America (Cheromcha). Despite this fact – or perhaps because of it – there is an excessive demand that their current production rate cannot accommodate (DeBord). In each successive month, there are continuous sale records broken. In July, for instance, sales of Tesla’s Model 3 peaked at 14,250 units, which was later overtaken by August’s record of 17,800 units, and again by September’s 22,250 units (Loveday).

However, this level of demand is not sustainable, especially for a model whose production rate recently climaxed at 5,000 units a week and is slowly leveling out at around 4,000 units a week (Randall & Halford). Due to a low supply but increasing demand, Tesla has not been able to meet all of its customers’ needs. The order rate has exceeded the production rate, causing significant delivery delays – and these delivery delays could cost the customers thousands of dollars (Lambert). As a result, 24% of Model 3 orders have been cancelled (Valinsky). The lack of supply has influenced the demand for Tesla’s Model 3, which is consistent with the principle of equilibrium price, which suggests that the demand and the supply will eventually fall equal.

In addition to a falling demand, the Tesla’s Model 3 has seen an adjustment in cost. As stated above, nearly a quarter of demands for the Model 3 have been cancelled. This constitutes a massive change in demand, leading to a corresponding change in price. Recently, Tesla has released a cheaper version of the Model 3 with a “mid-range battery”, allowing the price to be cut by nearly 4,000 USD, with price reductions up to 14,000 USD in California (Wolverton). As demand falls, as will the price, so that the demand and the supply can be balanced. Therefore, the change in cost of Tesla’s Model 3, as it followed the change in demand, is consistent with the principle of equilibrium price.

Tesla’s experience with the Model 3 is a modern-day example of the principle of equilibrium price. Supply and demand will naturally match and create a price that leads to equality between units provided and units sold. While Tesla may not have reached that point yet, the price of the Model 3 is certainly moving towards achieving equilibrium.