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Tesla's unorthodox pricing strategy is keeping analysts on their toes and investors on the lookout for additional corrections in the EV giant's stock price. Yet, there appears to be a method to this madness.

BREAKING: @Tesla has removed the Standard Range Model S and Model X in the US and dropped prices up to 19%. The Model X is now eligible for the $7,500 EV tax credit!

New lineup & prices:

•Model S LR: $74,990 (from $88,490)

•Model S Plaid: $89,990 (from $108,490)

• Model X… pic.twitter.com/3Y60UWgNnZ

— Sawyer Merritt (@SawyerMerritt) September 1, 2023

Earlier today, Tesla reduced the price of its Model S and Model X in the US by up to 20 percent relative to the last price tweaks. These price cuts were aggressive enough to render Model X eligible for the $7,500 federal EV tax credit.

At the start of the year, the base variant of Tesla's Model S was retailing at $104,990. Today, following the latest price cuts, the model now starts retailing at $74,990, constituting a discount of 28.6 percent.

Similarly, the base variant of Tesla's Model X was retailing at $120,990 in the US toward the start of the year. Today, the variant starts listing for $79,990, constituting a price plunge of 33.9 percent.

This is how much more expensive the refreshed Model 3 is in various countries vs the old Model 3:

•China: 12% more expensive

•Australia: 7.8%

•Germany: 2.4%

• France: 2.4%

Still a fantastic value! pic.twitter.com/ajOUlEoLSQ

— Sawyer Merritt (@SawyerMerritt) September 1, 2023

Yet, while the EV giant has aggressively cut the prices of its more premium models, it is paradoxically raising the price of its workhorse - the Model 3. To wit, the just-launched Model 3 refresh is around 12 percent more expensive in China. Tesla has been able to maintain the demand momentum in China through incremental discounts earlier this year as well as referral bonuses.

New Model 3 pricing in China:

¥232k/332k vs ¥260k/296k, a 12% PRICE INCREASE for the base model (but 9% range increase)

Wen first discounts? pic.twitter.com/I2Qj2Qa98j

— fly4dat (@fly4dat) September 1, 2023

Do note that Tesla's Model 3 refresh does entail an increase in range of around 9 percent.

JUST IN : TESLA HAS JUST CUT THE PRICE OF ITS FULL SELF DRIVING FROM $15,000 TO $12,000$TSLA pic.twitter.com/xdOaLlxtis

— GURGAVIN (@gurgavin) September 1, 2023

Finally, Tesla has also reduced the price of the FSD subscription to $12,000 from $15,000.

IQ test: If a) M-3 refresh with 29% of volume is now on avg 8% more expensive, and b) M-S/X with 4% of volume is now 20% cheaper, and c) the price of FSD at a 10% take rate declines 20% but the take rate increases from 10% to 12%, do $TSLA margins go up or down? Hint: $TSLAQ… https://t.co/sx5XxcG1aC

— Gary Black (@garyblack00) September 1, 2023

To bring this together, Tesla is increasing the price of its volumetric model while offering steep discounts on the more premium variants. It has also slashed the price of the FSD by 20 percent. Yet, as per the computation by Future Fund's Gary Black, the Model 3 refresh, which makes up around 29 percent of Tesla's sales mix, is now pricier by an average of 8 percent. Moreover, the steep discount on the FSD subscription is expected to increase its uptake from the current 10 percent to 12 percent. All of these changes now give Tesla a shot at improving its depressed margins. Bear in mind that Tesla's automotive gross margin (ex-regulatory credits) fell to 18.10 percent in Q2 2023 from 19.0 percent in Q1 2023 and 26.20 percent in Q2 2022.