Shulou(Shulou.com)11/24 Report--

"is Tesla fulfilling his promise, or is something else happening?

Author: Will Locket |

Compilation: Tang Poetry |

By now, you may have heard of Tesla's sharp cuts in car prices in the United States, Britain and Europe.

The domestic price of Tesla Model 3 / Y has been lowered again, with an overall drop of 2-48000 yuan. After the price adjustment, the Model 3 rear wheel drive version starts at 229900 yuan and the Model Y rear wheel drive version starts at 259900 yuan, creating the lowest price since the domestic listing. Why did Tesla do this? Did Tesla finally create the promised $35000 for a long time? Or is there something else going on?

Tesla claimed that the price cuts were due to "partial normalisation of cost inflation" and lower manufacturing costs. "partial normalisation of cost inflation" essentially means that the supply chain has managed to solve the problem and make materials cheaper after years of turmoil. According to Tesla, instead of using these savings to make more money for each car sales, they chose to pass them on to consumers.

But right away, this didn't make sense, and even the media that generally praised Tesla thought it was suspicious. First, Mr Musk still got a large number of battery packs from China, which was still struggling with COVID, meaning Tesla's supply chain had not yet been normalised and was still disrupted.

There is also the fact that materials such as lithium, steel and computer chips are still much more expensive than they were before COVID. More importantly, it is impossible for Tesla to reduce the manufacturing cost of Model Y by as much as $9000 and the manufacturing cost of Model S Plaid by $21000, so there must be other reasons.

Price reduction became Tesla's last weapon

Although Tesla is still one of the best-selling cars in the world, Tesla's sales figures are much lower than expected. Although Tesla in 2022 relied on a rampant performance, production and sales exceeded the 1 million mark for the first time, but annual sales grew by only 40% year-on-year, falling short of the 50% annual growth target set by Maxke. At the same time, Tesla has suffered an oversupply for two consecutive quarters.

Perhaps with the cost of living crisis and the looming recession, the number of new cars bought has declined over the past year. But that is not enough to explain the lower-than-expected sales figures, according to analysts. As a result, they pointed the finger at Tesla's competitors.

The sharp increase in competition is the reason why Tesla has worked so hard in China recently. Whether in product design, performance experience or self-driving as the representative of the core technology, although the current Tesla still has advantages, but in the pursuit of Chinese brands, the gap between the two is no longer insurmountable. Even in some areas, Chinese brands have been ahead of Tesla.

Tesla, on the other hand, has not brought new surprises on the product side for quite a long time, coupled with Tesla's consistent arrogant style towards the market and users, as well as frequent car accidents, rights protection, recalls and other negative news. This makes Tesla's brand charm is gradually diminishing.

But now that Tesla has reduced the price of Model 3 SR + in the UK to 42990 pounds, it has been better positioned in the market according to its specifications, which should prevent the loss of potential customers to other competitors.

The sales volume fell short of the expected target, which once again intensified Wall Street's disappointment with Tesla. Tesla's market capitalization has fallen to a two-year low of less than $400 billion. Some investors even believe that the situation faced by the world's largest car company by market capitalization is going into reverse and even began to reduce its holdings of Tesla.

Therefore, the purpose of the price reduction does not seem to be to generously "transfer" the saved money to Tesla's consumers, nor to bring the legendary $35000 Model 3 closer to reality, but to improve Tesla's sales figures and resist competition.

02. How will this affect Tesla?

In the third quarter of 2022, Tesla still had a gross profit margin of 27.9%, which can be said to be the highest in the world. Based on this calculation, even if the price of Model 3 falls to 200000 yuan, Tesla is still profitable.

On the other hand, the vast majority of China's new energy brands are still in the stage of "losing one Taiwan". Even if BYD, which wins the top spot in the domestic market in 2022 and poses the greatest threat to Tesla, its gross profit margin is only about 16%. This means that once Tesla is determined to start a price war in the Chinese market, it will be difficult for Chinese brands to escape with their current wealth.

Does Tesla sell cars only for a profit of a few hundred dollars? It's not. Tesla chose to play the "price reduction card" at the beginning of the new year, when the national subsidy has just been cancelled, obviously to pull China's new energy vehicle market into the era of "blood". After all, even in the downward trend, Tesla is still the most "bloodshot" car company at present.

Chinese brand models with performance-to-price ratio as the main selling point, while the main model prices are concentrated in the range of 20-300000 yuan, such as Xiaopeng P7, BYD Seal, Changan Deep Blue SL03, Zero run C11, Nezha S and other models, will bear the brunt of the attack. After spelling technology, products and brands, Chinese brands will have to compete with Tesla whose blood is thicker.

All in all, this does point out the fact that Tesla has to sacrifice a lot to maintain his competitiveness.

Price reduction is only an expedient measure

Although the price reduction will promote Tesla's sales growth, it will also be at the expense of Tesla's brand value. Especially in the Chinese market, one of the simplest criteria to distinguish whether a brand is a luxury brand or a low-end brand is price. In particular, the line of 200000 yuan is often a watershed for ordinary users to distinguish between middle-and low-end and middle-and high-end brands. In other words, the more Tesla's price approaches 200000 yuan, the faster its brand value will disappear.

In addition, the frequent plunge in prices will definitely affect users' expectations of Tesla's future price trends. When users' mistrust of Tesla reaches a certain tipping point, they will also begin to hesitate to buy Tesla. From this point of view, Tesla may not be willing to fight a price war for a long time.

Of course, Tesla can choose to correct the situation. For example, it could use its suppliers Ningde-era sodium ion and Kirin batteries to make electric cars that charge faster and have longer mileage, while reducing manufacturing costs.

And if the price war launched by Tesla turns into a long-term battle, it may eventually turn into a war of attrition, in which Tesla's brand value will be wiped out first, or the wealth of some Chinese brands will be consumed first.

This article comes from the official account of Wechat: new Research (ID:chuxinyanjiu), author: Tang Shi

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