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

Tesla rarely spends money on advertising, but many investors feel uneasy as sales growth slows and price cuts are adopted to boost car sales, according to the news on October 16. In particular, the price cut may reduce Tesla's income by billions of dollars this year. General Motors, Ford and other automakers spend more than $20 billion a year on advertising in large media.

The following is the translation:

In many ways, Gary Black can be called a big fan of Tesla. Since the fund was founded in 2021, the Chicago fund manager has always regarded Tesla as his largest shareholding and often expressed his support for Tesla on social media. But recently Blake has been thinking about whether Tesla's cutting prices in order to maintain a high growth rate is a waste of money.

With the growth of Tesla's car and SUV lagging behind and the Cybertruck electric pickup truck about to launch, Blake insists that Tesla, or Elon Musk, should abandon his long-standing opposition to spending money on advertising in big media.

Blake's idea has the support of his allies on social media. An online survey conducted by @ TroyTeslike, another active Tesla social media fan, found that half of the more than 8000 respondents thought Tesla should start advertising instead of growth strategies such as further price cuts and adding new technologies to high-end Model S and Model X.

When a shareholder questioned Musk on the issue at Tesla's annual general meeting last May, Musk was surprised and even funny, but most Tesla fans were cheering.

"even if each Tesla spends $525 on advertising this year, it's still only half of Netflix's advertising budget, and $1000 is only equivalent to the entire advertising budget of Netflix. I see the latter's ads everywhere. Musk, why don't you publicize what you told us here?" Says Kevin Pavras, who runs The Meet Kevin Pricing Power ETF in Southern California. In particular, he pointed out that safety functions such as airbag deployment technology are Tesla's advantages and may attract more consumers through advertising.

In fact, Musk is open to the idea of advertising. He once said: "Tesla has a lot of amazing features and functions, but people just don't know. Although obviously a lot of people follow Tesla's account, you know, to some extent, my personal account is already preaching to the choir, and the choir has been persuaded."

Then Musk made a promise. "I think you do have a point," he said. "I believe it is necessary to adopt these suggestions. We will try to do some advertising and see how it works." Shareholders burst into cheers and Musk responded: "I didn't expect them to be so enthusiastic about advertising."

However, if shareholders expect Tesla to advertise heavily, they may be disappointed. In the months since then, Tesla spent very little on online and social advertising, said Dan Ives, an analyst at Wade Bush Securities. At the same time, sharp price cuts continue, which is Musk's main strategy to attract more interest in Tesla.

Musk has always been a staunch supporter of cost reduction. As he said at this year's annual meeting, one of Tesla's goals is to bring electric vehicles to mass market consumers. In the U. S. market, many Model 3 prices are already lower than the average price of new passenger cars.

Price cuts affect Tesla's gross profits. in fact, the average price of most Tesla models has fallen by about 20 per cent since August 2022, according to Cox Motor Company. These figures do not include the $7500 federal tax credit restored under the inflation reduction Act of 2022 (2022Inflation Reduction Act).

But Mr Blake said the latest round of price cuts announced last month cost Tesla $2 billion a year. Ives estimates that overall, the price cuts of the past year have had a greater impact on Tesla's income.

In fact, Blake made the estimate because he thought Mr Musk should reconsider the extent to which Tesla relied on price cuts rather than spending money on advertisements to promote safety features such as lower costs for electric vehicles and wireless software updates. This is particularly urgent given that Tesla's share price, while up about 140 per cent this year, is still 1/3 below its 2021 peak and has lagged behind the s & p last year.

"I don't think you can get that much elasticity of demand by reducing the price of Model Y from $55000 to $48000," Blake said. "instead of reducing the price by $2000, cut the price by $1800 and increase advertising."

Blake also believes that Tesla's price reduction is actually a strategy to increase marketing expenses. He said Tesla's decline in market share in the electric vehicle sector this year showed that price cuts alone would not work.

In fact, despite Tesla's lower prices, his share of the US electric car market has been declining. Tesla delivered 435059 vehicles in the third quarter, up from 343830 in the same period last year, but down from 466140 in the second quarter and about 423000 in the first quarter. Tesla blamed the "planned shutdown in the factory upgrade" for the lower-than-expected third-quarter results.

Mr Ives said the negative impact of the price reduction strategy was also reflected in Tesla's gross profit, which fell to 18 per cent of sales in the second quarter from 25 per cent in the second quarter of 2022. This means that Tesla's potential gross profit will be reduced by $1.5 billion, unless some of that can be made up for by increasing sales.

How does Tesla advertise? 'We can guess how effective Tesla's advertising campaign might be, 'said Allen Weiss, chief executive of MarketingProfs, a market research and training company. He pointed out that in addition to security functions, consumers are also concerned about many aspects.

"I will first determine what benefits customers want," he said. "some of them may be more concerned about the performance improvement of Tesla's car, some prefer to see it as a luxury or status symbol, and others think they are helping to save the planet. After that, I will find out what these benefits represent, target some of these buyers, and come up with good ideas around these benefits. In this way, you can get interesting ideas and connect with buyers about what they really care about. "

Weiss believes that Tesla's challenge is that as the company develops, it will compete more directly with experienced marketing companies. Ford is already aggressively promoting its Fmur150 lightning pickup truck, and GM has been advertising the Super Bowl (SuperBowl) for the past three years.

Polestar, the Swedish electric carmaker, is also advertising, spending an estimated $20 million this year. Polaris and BMW also promote electric cars on Super Bowl TV broadcasts, even though they are the most expensive in the United States. Industry data firm iSpot estimates that about 1/4 of auto advertising spending in 2022 is aimed at electric vehicles, a trend that Ives calls a "wave" and expects it to continue.

"other automakers are used to paying more attention to the interests of their customers, but Tesla is not," Weiss said. Open the Ford website, click on the 'electric car' page, and you will immediately see amazing design, impressive performance and exciting words. Go to BMW's electric car page and you will see descriptions such as' cutting-edge performance and luxury'. On the Tesla website, you will only see the price. "

Even Musk himself admitted at the annual meeting that he was often told that Tesla's electric car was too expensive. "I have talked to a lot of people and they still think Tesla is super expensive," he said. "but I don't think so. The average price of Tesla is lower than the average price of a new car in the United States."

Mr. Ives said Tesla doesn't need to spend as much money on advertising as Ford or GM, and he believes a targeted advertising campaign can focus on the specific advantages of Tesla or other electric vehicles.

"Tesla has some differences, but people know nothing about it," he said. Even if the average cost of Tesla's car falls, it can use advertising to maintain its luxury brand image and "start to change people's minds".

Ives also said that when Tesla reached its maximum scale, what attracted the most attention was sales volume and operating profit margin. Blake believes that people will soon find out whether more advertising will help.

Even Musk began to believe in the power of advertising. "I think it's ironic that X is highly dependent on advertising, but I myself 'never use advertising'. Now I have a company that is highly dependent on advertising. I think I should say that advertising is great and everyone should advertise."

Welcome to subscribe "Shulou Technology Information " to get latest news, interesting things and hot topics in the IT industry, and controls the hottest and latest Internet news, technology news and IT industry trends.