Tesla has adopted an age-old tactic in the industry by waging price wars against legacy companies. This strategy is effective because it helps to undercut prices and gain market share.
Tesla’s cuts have impacted the automaker’s competitors in a big way. Ford, Fiat Chrysler, and General Motors all responded by announcing price cuts of their own. Ford even cut its entire lineup by $3,000 and lowered the prices of its electric vehicles. Tesla’s cuts helped make electric vehicles more affordable for consumers, but it is clear that companies are also trying to stay competitive.
Tesla has always prided itself on offering high-end vehicles at affordable prices. However, the company’s latest price reductions may not be enough to keep its customers satisfied. While the base model of Tesla’s Model S and Model X remain affordable, many of Tesla’s more expensive options are now much more expensive than they were before.
In total, Tesla lowered the prices for its latest models by $2,000 and $1,000. These price cuts come just a few months after the company announced that it planned to slash prices by up to 50% for some of its vehicles starting in early 2020.
Tesla’s decision to lower prices comes as the
Tesla’s decision to reduce prices in the U.S. may come as a surprise to some, as the company had previously stated that it would not reduce prices until after the $7,500 federal tax credit had expired. However, Tesla’s new guidance from the IRS suggests that this may no longer be a viable option – with prices for Model 3 rear-wheel drive set to decrease from $3,750 down to $3,000 on April 18th. This change may impact customers’ purchasing decisions somewhat – though it is worth noting that other variants of the Model 3 still boast excellent value for money.
Tesla is currently enjoying one of the higher automotive margins in the sector. Selling its vehicles for lower prices could chip away at that profit margin unless Tesla can reduce costs elsewhere. And, as Tesla drops prices, it risks alienating consumers who may be less inclined to buy a more affordable product in the future. While lowering prices may boost sales, it comes at a cost.
Tesla’s price cuts in China could be an indicator of continued cost-cutting measures from the company. Tesla has been cutting production costs and prices throughout its product line in order to remain competitive, and with the stock market reaching new heights, there is no doubt that Musk is looking for ways to keep Tesla afloat even during these tough times.
While some analysts and investors remain cautiously optimistic about Tesla’s future, the company has kept its price cuts in effect despite struggling to keep up with production goals. To still meet its self-imposed goal of producing 1.8 million vehicles this year, Tesla is relying on overtime, a measure that has already forced the resignation of several employees. While having a large following amongst early adopters may be helpful for raising capital and acquiring new customers, it may not be enough to sustain Tesla’s business in the long run if it can’t find ways to lower costs and increase production efficiency
Tesla’s production and delivery numbers are impressive, but they still haven’t caught up to Toyota and General Motors. Tesla faces a lot of competition, and it will need to keep putting out innovative products in order to stay ahead.
