Tesla on Friday announced it will cut the price of its best-selling electric vehicle models by up to 20 percent in Europe and the United States, launching a price war as more rivals hit the market.

Shares in the Elon Musk-led company have plummeted for more than a year and fell as much as 4.5 percent in early trading on Friday, before recovering some lost ground.

"It's no secret that demand for Tesla is starting to see some cracks in this global slowdown for 2023," said analyst Dan Ives of Wedbush Securities.

However, Ives said the price cut was the "right move" and "a clear shot across the bow at European automakers and US stalwarts GM and Ford that Tesla is not going to play nice in the sandbox."

Tesla has already lowered prices twice in China in recent months and offered rare promotions in North America late last year.

According to social media posts, the price cut in China caused disgruntled Tesla owners to swarm showrooms angry that they had missed the second round of discounts.

In 2022, the group delivered a record 1.31 million electric vehicles, a 40 percent year-on-year jump.

But that was still lower than Musk's long-term goal of boosting deliveries by an average of 50 percent a year.

Investors are concerned that sales will slow down due to the economic downturn as well as rising interest rates that make it more expensive to borrow money to buy a car.

Observers also point to the arrival of multiple competitors in the electric vehicle market, with major auto builders now offering a line-up of models, including in the luxury segment long dominated by Tesla.

According to the Wall Street Journal, the discount now enables buyers of Tesla's US-made Model Y to benefit from a US tax incentive by putting the vehicle below a US$55,000 cap.

The US$7,500 tax credit on US-made EV cars, part of US President Joe Biden's climate plan, has been harshly criticised as protectionist by European governments and manufacturers. (AFP)