Tesla has implemented various strategies to entice customers, including price reductions and attractive incentives. These incentives include substantial discounts on inventory vehicles and free charging at Tesla’s national Supercharger network. Additionally, customers can avail further discounts by using referral codes provided by current Tesla owners.
In an effort to attract buyers more focused on monthly payment amounts rather than the total vehicle cost, Tesla has introduced 84-month loans, extending the maximum loan term by a year. This tactic has been adopted from traditional automakers.
Elon Musk, during a recent earnings call, acknowledged that Tesla’s pricing is dependent on the macroeconomic conditions. If the conditions remain stable, prices are expected to remain steady. However, in an unstable economic climate, Tesla may need to lower prices.
Musk has ambitious goals for Tesla’s sales, aiming for a 50% annual growth rate and envisioning the production of up to 20 million vehicles per year in the next ten years. This growth also includes the development of autonomous taxis for which Musk predicts “quasi-infinite demand.”
Tesla’s expansion efforts include the establishment of new plants in Austin, Texas, and Berlin, along with the expansion of existing factories in Fremont, Calif., and Shanghai. According to Tesla’s second-quarter earnings statement, the company’s global vehicle production capacity currently stands at just over 2 million vehicles per year.
Despite its pursuit of growth, Tesla remains highly profitable, reporting a 20% increase in second-quarter net income to $2.7 billion. This profitability enables Tesla to maintain relatively low prices.
An area where Tesla faces a disadvantage compared to traditional automakers is its lack of a dealer network to manage excess inventory during periods of low demand. This prompted Tesla to adjust its pricing strategy this year, raising prices during the pandemic when demand exceeded supply and subsequently lowering prices.
Tyson Jominy, the Vice President of Data and Analytics at J.D. Power, highlighted the benefits and challenges of the direct-to-consumer model. While this model allows manufacturers to reap profits from both manufacturing and retailing, it becomes problematic when inventory levels increase. Tesla, in response to rising inventories, has been proactive in adjusting prices to maintain sales momentum.
However, Jominy suggests that the growing inventories of electric vehicles in general, despite strong sales, may lead to legacy automakers adopting similar strategies as Tesla. This could result in price cuts or increased incentives in order to sell vehicles from their dealer lots.
“By the end of June, the dealer lots have seen an accumulation of almost 90 days’ supply of EVs,” explained Jominy. “So, it is possible that we will witness aggressive pricing actions in the third quarter.”
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
