Author: Chang Yan
What is the most daunting thing for industry-leading companies in any field?
It is the power of pricing in the entire industry.
Leading companies anchor industry benchmarks with their most iconic products. When consumers choose competing products, they compare the prices with the benchmark.
Every adjustment made to this benchmark has a far greater impact than the flutter of a butterfly’s wings in the Amazon rainforest.
For example, the price increase of Apple’s flagship iPhones in the past few years is widely believed to have made enough cost space for flagship Android smartphones to sell at higher prices.
So, what if this benchmark is lowered?
Take a look at Tesla today.
Tesla: Lowering Prices Against the Trend
Until recently, nobody really believed that Tesla would reduce the price of all models.
However, Tesla has already shown some signs of that.
Starting from September, Tesla China has been offering minor discounts on car insurance and other fees. Media has also been reporting rumors of possible price adjustments by Tesla.
After all, this is a risky move for the new energy industry that has been roaring to success this year. It seems that Tesla does not have much choice.
But Tesla still did it.
Although we tried to avoid using words such as price reduction and promotion, the market shock caused by this price adjustment is still evident in terms of volume.
The rumors of a possible price reduction started spreading in various Tesla discussion groups I am in since last night, and today the news of Tesla’s price adjustment has taken the core position of all new energy media in almost an hour.
This is a price adjustment involving the entire Model 3 and Model Y series:
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Model 3 rear-wheel drive version, starting from 265,900 yuan (after subsidies), reduced by 14,000 yuan from the previous price of 279,900 yuan;
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Model 3 high-performance version, 349,900 yuan, down by 18,000 yuan from the previous price of 367,900 yuan;
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Model Y rear-wheel drive version, starting from 288,900 yuan (after subsidies), reduced by 28,000 yuan from the previous price of 316,900 yuan;
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Model Y long-range version, 357,900 yuan, down by 37,000 yuan from the previous price of 394,900 yuan;
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Model Y high-performance version, 397,900 yuan, down by 20,000 yuan from the previous price of 417,900 yuan.
The most noteworthy thing is the entry-level models of Model 3 and Model Y.
On the one hand, according to financial websites that have been tracking Tesla’s deliveries overseas for a long time, the average price of Tesla’s new vehicles delivered each quarter has been steadily declining, indicating that the sales proportion of entry-level models is constantly increasing, which influences the most users.
On the other hand, the lower the position of the entry-level models, the more likely they are to intersect with other brand models, affecting more potential customers of the competitors. In other words, those consumers who couldn’t afford Tesla before now also have it as an option.
Tesla’s pricing adjustments are also more guiding. Obviously, the price cut of Model Y is much larger than that of Model 3, making the cost-effectiveness of Y more prominent, and the cold silver color that originally required 8,000 yuan as an optional feature has also become a standard feature, becoming a hidden price benefit.
For other brands, it seems that there is not much ability to follow up and tap into potential. Tesla’s pricing power is based on a huge manufacturing scale, a strong voice in the supply chain, and a long-standing high-margin red line. Tesla has maintained an average gross profit margin of more than 30% per car for a long time. When sales are smooth, this becomes a fertile soil for cultivating cash flow, and when confrontation is needed, it becomes the strongest arsenal of manufacturing.
However, for those categories of models that are still in the supply chain cultivation period, and even with the deep constraints of underlying component cost increase on the gross profit of a single vehicle, maintaining the original pricing is already a profitable endeavor, and following steep price cuts of more than 10% would undoubtedly be self-destruction. These factors will greatly amplify the sales profits of Tesla’s price adjustments.
Re-activated Referral System
I once said that among all new car companies, Tesla has the strongest commercial sense.
Tesla’s commercial decision-making is most directly and intimately related to sales performance. If it helps with profit, then it must be done quickly and to the best of its ability; if it does not contribute to profit, then it should be stopped without hesitation. Although Tesla also emphasizes humanity and good experience in the sales process, the retention of emotional factors of customers has a minimal impact on commercial decisions in essence.
Tesla’s owner referral program is undoubtedly the best example. In the Model S and Model X era, it was the lowest-cost global sales promotion plan, helping Tesla save advertising and marketing expenses and including vehicle owners in the sales team when Tesla had fewer sales outlets and exorbitant prices.
However, in the Model 3 era, the benefits of the referral program decreased rapidly. One reason was that Tesla already had a stable global sales and delivery system and the other was that there was little difficulty for consumers to choose due to the incredible competitiveness of the vehicles.# Tesla’s Referral System: More Than Just a Credit
Despite the high credit value that Tesla’s previous referral system brought, the company removed it without hesitation. However, the new system introduced recently suggests that Tesla needs owners to help sell cars.
Compared to the previous system that simply accumulated credits, the new referral program offers various rewards. Owners can even win special prizes when they reach fixed amounts such as 5 or 20 referrals. This will significantly increase owners’ participation and the desire to refer Tesla to others. It is an indirect way of controlling owners’ opinions and preference towards Tesla for promoting electric cars. This is an important measure to strengthen the foundation of public discourse in today’s increasingly open discussion about purchasing and selecting electric cars.
Overseas Users’ Envy
This is one of the few moments where overseas Tesla users express their envy towards Chinese owners.
After Tesla’s price adjustment plan, numerous American Tesla KOLs began to @Musk on social media, asking why the US does not follow the same price policy. Even users deeply rooted in Japan left messages on my account, asking why Japan does not follow the same pricing strategy.
My understanding is that Tesla’s pressure in China is completely different from its performance in overseas markets.
In my opinion, the significance of this price adjustment lies in that it may be a qualitative change in Tesla China’s pressure level in the Chinese market, and Tesla’s sales and product strategies in the Chinese market may have more aggressive changes.
Compared to overseas markets, Tesla’s market environment in China has two huge and difficult-to-adjust prerequisites.
First, China has a huge production base in Shanghai Super Factory, which has become Tesla’s largest production capacity output in fact, after the Berlin Super Factory gradually undertakes in the European market, how to maintain the growth rate of Shanghai factory needs an answer.
Second, the competition of electric vehicle technology in the Chinese market is the most fierce and abundant, and the richness and forward-looking of Chinese market products are extremely rare in the global market. Even I think it is higher than that of the US and European markets. Although Tesla belongs to the hexagonal warrior in product technology experience, it must be acknowledged that there have been better Chinese products in overall experience and single-point effect. This is also the most significant factor for Tesla to continue to maintain order reserves in the Chinese market.
Therefore, no matter how proud Chinese Tesla fans are of Tesla’s market situation, they should thank Chinese new energy vehicle brands as they are the foundation that enables you to get the Tesla with the highest cost performance in the world.
In the long term, Tesla’s core appeal worldwide remains the scale effect repeatedly emphasized by Musk. Scale not only determines Tesla’s cash income but also whether it can achieve stable capital market valuation through later technological iterations.
In fact, Tesla China has many cards to play.
Hopefully, this is just a beginning after realizing it.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.