Tesla Changed Its Pricing Structure Again: Is It Going Bankrupt?

TruckElectric

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Tesla doesn't rely on MSRP and discounts. It simply adjusts prices and model offerings from time to time.
This article comes to us courtesy of EVANNEX, which makes and sells aftermarket Tesla accessories. The opinions expressed therein are not necessarily our own at InsideEVs, nor have we been paid by EVANNEX to publish these articles. We find the company's perspective as an aftermarket supplier of Tesla accessories interesting and are happy to share its content free of charge. Enjoy!
Posted on EVANNEX on February 23, 2021 by Charles Morris
Tesla is different from other automakers in many ways. One unique, and welcome, feature: it regularly reduces the prices of its vehicles. Another different thing about Tesla is that, because of the upstart automaker’s prominence, every little thing it does is immediately studied, analyzed and pontificated upon by hordes of online pundits.
Tesla_model_Y_ev_49.jpg
Above: Tesla Model Y (Source: EVANNEX; Photo by Casey Murphy)
Tesla recently adjusted its pricing structure, paring the prices of the lowest-priced Model 3 and Model Y by $1,000 and $2,000, respectively. The cheapest Tesla is now a Standard Range Plus Model 3, which starts at $36,990, a bit lower than the average price for a new car in the US ($40,573 as of December 2020, according to Edmunds).
In the traditional auto industry, price cuts are considered bad news—a warning sign of flagging demand for a particular model or make. The chattering classes seized on the price reductions as an omen of impending doom, and TSLA stock took a tumble.

Just a couple of days later, Tesla caused confusion by removing the lowest-price Model Y from its online offerings entirely. Is the company dropping the most affordable Model Y? Is this just a temporary move? Can’t Tesla make up its mind? The muddled messages caused TSLA to really plummet this time, dropping to levels last seen a couple of months ago.

So, is this it? Is the EV revolution all over? Will the most hardcore anti-Tesla short-sellers soon be bathing in champagne, and proudly donning their little pink short shorts, as Elon Musk drowns his sorrows in Teslaquila?
It doesn’t seem likely, for a couple of reasons.

First, what just happened was hardly a fire sale. As it stands now (Tesla may make more changes next week, who knows?) it was only the entry-level Model 3 that got a price cut—Tesla kept the prices of its mid-level trims the same, and actually increased the prices of the top-level trims. Assuming that the price changes reflect the demand situation (and no one outside the company can say for sure whether this is the case), the meaning of this round of repricing would seem to be that buyers prefer the company’s higher-priced variants. Considering that higher-priced products tend to carry higher profit margins, this would seem to be good news, not bad.

It’s also worth keeping in mind that we’ve seen this show before. Tesla is constantly rejiggering its lineup, adding new variants, dropping others, inventing new names for them, and lowering prices for entry-level models while increasing the prices of options (the full self-driving package now costs an additional 10 grand!). Inevitably, some buyers end up on the losing end of the constant changes, and that’s unfortunate, but it doesn’t seem like a real reason not to buy a Tesla. As I’ve written in this space before, it would be nice if car pricing were simpler, but if anything, Tesla’s pricing is more transparent than that of legacy brands.

Finally, as regular readers of this column know very well, Tesla’s mission is not the same as that of other automakers. The old guys (and one gal) are selling in a mature market, and they’re out for one thing: profit. Young Tesla is a disruptor—it isn’t out to steal a piece of the oldsters’ business, but to eliminate their business altogether. Every EV sold brings the end of the Oil Age, and the fulfillment of Tesla’s quest, closer. Seen in that light, forgoing a thousand bucks worth of profit on each base Model 3 sold may be an acceptable trade-off for selling more of them.

SOURCE: INSIDEEV's





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Crissa

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Over at Tesla Daily he had to answer this question, too.

Who is it that think changing a sticker price means a company with billions in the bank is 'going bankrupt'? Where did this idea come from that it's healthy for a company to jack up prices? Raised prices means fewer sales. They usually wash out.

-Crissa
 

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Over at Tesla Daily he had to answer this question, too.

Who is it that think changing a sticker price means a company with billions in the bank is 'going bankrupt'? Where did this idea come from that it's healthy for a company to jack up prices? Raised prices means fewer sales. They usually wash out.

-Crissa
Isn’t also the theory when you are at a certain volume that you subsidize the cheapest models with higher margins on the more premium models in order to get in all the customers?
 

Crissa

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Isn’t also the theory when you are at a certain volume that you subsidize the cheapest models with higher margins on the more premium models in order to get in all the customers?
Well, not 'subsidized' but the profits are averaged.

But these investors value the profit margin over total or sustained profitability. And that's bad for most customers.

-Crissa
 

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Well, not 'subsidized' but the profits are averaged.

But these investors value the profit margin over total or sustained profitability. And that's bad for most customers.

-Crissa
True. I was thinking more in marketing terms when you price a very basic base model with little profit or even at a loss but the options/version 99% people need pulls up the profit margin to an acceptable level. A very few (hopefully) will still get the basic base model though, but maybe tell other people how cheap it was while still being a decent car. In effect paid advertising. At least the company can say they actually sell a car at that basic base price. Somewhat like the famous 35,000 usd model 3 (if that in fact turned out to be “too cheap”). In those (extreme) cases the people buying a more expensive version can be said to “subsidize” the cheapest one (maybe not correct word in English).

That’s a risk though and would seem what these investors might think about Teslas margins, but that’s not the most common strategy (or Tesla’s strategy as they don’t have that many options and the fact that they quite quickly phase out versions (see Porsche’s horrible and confusing pages and pages of insanely priced options)) although they average profits like you say.

Subsidizing might be a more common pricing strategy for having the cheapest frozen cardboard tasting pizza in grocery stores 😊 Where it’s just a small part of all that you spend on.

Agree too that it is beneficial to all that a company does not focus on maximum instant financial profits.
 
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Have to say IMHO that the disconnect is more likely that people still think Tesla is a "Car" company. The "Car" is the accessory. The underlying tech is where the company equity lies. A lot of factors that don't really have to do specifically with Tesla is what is driving the dip. Being hit across the market, Tech is just getting taking the bigger beating.
 

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