EkaLore releases use our Alien Invader Framework to explain Tesla’s rise in the vehicle industry. In this release, we consider Tesla’s pricing in different global markets and how prices change(s) are being interpreted by investors, customers, and a guess at what Tesla is thinking.
Tesla’s production strategy is driving down the cost to produce a Tesla compared to its competition. They have a bigger margin to play with than most competitors.
Simply, Tesla sees the benefits of price changes as being better for Tesla than leaving well alone.
Tesla has announced a series of price increases in the USA, EU, and China during 2021-2022. Price increases were caused by more than one factor including:
· Cost increases for raw materials,
· Increased logistics and delivery costs,
· Financial pressures as Texas and German plants are brought online, and
· Changes in currency exchange rates where Tesla sells versus the USA where Texas books margins
Most observers believed the October 2022 price reductions were a reaction to lower-than-expected sales and expectations in the Chinese domestic market. A look at the reasons for price increases illustrates a case for price decreases:
Raw materials costs have come down slightly
Costs to ship cars to the EU markets drops as Germany comes to full production
Tax incentives in different countries offer greater reasons to buy with price drops
Financial pressures ease, as multiple products build to larger production shipping rates
Cyber Pickup, commercial semi-truck, energy stores)
Currency exchange trends can be hedged
As an Alien Invader there may be another set of reasons:
1) Reducing prices reduces margins for competitors (Ford will already lose money on the 50,000 Lightening F-150s in the range of USD$5-20,000 per vehicle)
2) Costs are dropping faster, and Tesla can continue meeting investor expectations even with less revenue
3) Tesla will continue to gain from tax credits and incentives and an Electric Vehicle manufacturer
4) Reduced prices increase the direct-to-customer revenues ratios in the future
5) Tesla sees reduced prices as good for customers
An Alien Invader might see:
A) Competitors fighting to become profitable in EVs have even a harder time positioning vehicles for sales with less margin – even harder to compete with Tesla
B) Tesla’s production margin per car continues to benefit from higher production volumes
C) Tesla may not have originally calculated the full tax benefits in an inflationary period
D) Tesla may see the ongoing tax and incentive program durations as an incentive to build
the customer base with high production which will generate many times those returns
E) Tesla may be pursuing Learning Curve pricing instead of traditional legacy price programs where increasing prices was seen as good for the manufacturer
Simply, price reductions will likely still meet Tesla’s financial goals while making it even harder for competitors. Tesla’s price reductions are hard for competitors to counter even with only some EV manufacturers being profitable. Tesla may not be playing to the same playbook as legacy competitors.
You can read this and other analyses about overwhelming competitors invading new markets at www.ekalore.com/alien-invaders
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