According to recent data collated by Reuters, Tesla’s unrivaled profit margins after the price cut have been visualized below.
Tesla made the unexpected revelation that it would be slashing prices on its vehicles by as much as 20% in January of this year.
Although price reductions are nothing new in the auto industry, they are new to Tesla. The business, which has always struggled to meet demand, has experienced a decline in its order backlog from 476,000 units in July 2022 to 74,000 units in December 2022.
Tesla’s strong production growth, which saw 2022 production rise 41% over 2021, has been blamed for this (from 930,422 to 1,313,851 units).
The era of “endless” demand appears to be ending, therefore Tesla is taking the offensive by lowering its prices. This puts pressure on rivals but has also enraged current owners.
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Cranking up the Heat
However, as explained below, Tesla’s price reductions are not quite the desperate measure some media sites have suggested they are. Instead, they represent an effort to protect its market dominance.
Tesla’s margins are much greater than those of its competitors, both in terms of gross and net profit, according to recent data collated by Reuters.
Gross profits are also mentioned in the table below, however, our graphic only shows the net amounts.
Despite the disadvantages of price cuts, one may contend that they are worthwhile for Tesla given the data—particularly in a crucial market like China.
Tesla has taken the nuclear option to bully the weaker, thin margin players off the table.– BILL RUSSO, AUTOMOBILITY
It’s unlikely that the Chinese EV firms Xpeng and Nio would be able to match Tesla’s pricing reductions because they have zero net profitability. In January, both businesses reported lower sales than in the same month last year.
Regarding Tesla, reports in Chinese media outlets assert that the company received 30,000 orders in the three days following the announcement of its price reduction. Note that no one within the company has formally confirmed this.
Tit for Tat
Recently, Ford made news when it revealed its own pricing cuts for the Mustang Mach-E electric SUV. It directly competes with Tesla’s best-selling Model Y.
The following table lists the various EV prices that Chevrolet and Hyundai have recently changed.
The absence of Volkswagen from this table is notable. The company has been outpacing Tesla, particularly in the European market.
We have a clear pricing strategy and are focusing on reliability. We trust in the strength of our products and brands.– OLIVER BLUME, CEO, VW GROUP
Volkswagen’s ambition to dominate the EV market may be hampered by this choice, especially if other automakers follow Tesla’s lead and decrease prices. Currently, Tesla continues to have a firm grasp on the US market.
When the firm revealed it would be cutting the prices of its cars, recent Tesla buyers were furious. Even at Tesla storefronts and delivery facilities in China, customers staged demonstrations.
Recent customers not only missed out on a better deal, but their automobiles have also essentially lost that much value due to the price reduction. Given Musk’s 2019 assurances that a Tesla would be an appreciating asset, this is a disappointing change of events.
I think the most profound thing is that if you buy a Tesla today, I believe you are buying an appreciating asset – not a depreciating asset.– ELON MUSK, CEO, TESLA
Recently according to an exclusive by Reuters, Tesla is under criminal investigation by the Department of Justice for claims that its cars can drive by themselves.
The full self-driving (FSD) capabilities of Tesla, which Elon said would allow owners to convert their cars into robotaxis, were the subject of his remarks.