In a recent move, Tesla further slashed its prices in the US, reigniting the ongoing debate contrasting the efficacy of price cuts against advertising. Critics argue about short-term profit margins while overlooking Tesla's long-term vision: accelerating the global transition to sustainable energy. By making electric vehicles (EVs) more affordable, Tesla aligns perfectly with its mission, and it's a strategy that’s paying off.
A closer look at the numbers reveals the strategy's effectiveness. In 2019, Tesla sold 367,000 units throughout the year. Fast forward to 2023, and their sales volume has skyrocketed, now surpassing that yearly figure within a single quarter. This remarkable growth occurred without any significant advertising, a feat unheard of among legacy automakers who spend billions annually on marketing efforts.
The case of Lucid Motors serves as a stark contrast. Despite investing $100 million in advertising, Lucid's growth remains stagnant. They reported the production of 4,487 cars with 2,810 deliveries in the first half of the year, and an estimated 1,601 deliveries in Q3, marking roughly a 60% sales downturn from the previous quarter. So advertising not really working here.
While Tesla did dabble in advertising recently at a Japanese airport, the effort is unlikely to significantly accelerate sales. The core issue of affordability remains for many potential buyers. However, the recent price cuts, attributed to continuous cost reduction efforts and overcoming supply chain hurdles exacerbated by the COVID-19 pandemic, bring Tesla vehicles closer to a broader market segment.
An analysis by Ark Invest highlights a return to pre-pandemic pricing, adjusted for inflation, indicating a downswing in prices from 2019. Yet, the Average Selling Price (ASP) of a Tesla vehicle in the first half of 2023 stood at $44,203, still a stretch from the sub-$30,000 mass market threshold. Despite this, Tesla boasts the title of having the world’s best-selling car, showcasing its remarkable market penetration.
The anticipation surrounding Tesla’s forthcoming $25,000 car is palpable. This vehicle is expected to expand Tesla’s addressable market from about 5% to nearly 50%, potentially cementing Tesla’s position as an indomitable force in the auto industry.
Moreover, Tesla’s meticulous management of its supply chains, as elucidated by Jeff Lutz, coupled with a consistent annual 10% drawdown in the Cost of Goods Sold (COGS), reflects a balanced approach between profitability and affordability. Notably, even amidst the financial strains during the ramp-up of the Berlin and Texas factories in 2022, Tesla managed to lower the COGS significantly over the past two years, passing these savings onto consumers.
In conclusion, Tesla’s strategic price cuts, underscored by a mission-driven approach, not only fortify its market position but also contribute significantly towards a greener automotive future. While short-term profit debates rage on, Tesla’s vision of sustainable energy transition, reflected in its pricing strategy, continues to resonate with a growing customer base, painting a promising picture for the EV giant’s journey ahead.
Thanks for reading. Lars Strandridder, BestInTESLA
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