It’s just over a month since Tesla cut prices by up to £8000, officially because it had sourced better deals with suppliers, unofficially because it had for the first time in its frenzied history more supply than demand.
For owners who had only just taken delivery, it was a devastating financial blow. Calculations for the UK’s 16,568 customers last December suggest they collectively paid in the region of £100 million for the pleasure of up to a couple of weeks of ownership; an extrapolation of Tesla’s 405,278 sales in the final three months of last year would suggest that a collective £1.6 billion could have been saved by people waiting 90 days or so.
Understandably, there was disquiet. Hundreds of owners picketed the firm’s headquarters in China, while in Europe and the US frustration was focused on social media, where complaints of being ‘duped’ were rife. For a tranche of owners, the dream of buying into the world’s most talked-about car brand had turned quickly sour.
What happens next is the subject of deep debate. Industry convention would suggest Tesla’s headline-grabbing move has laid it open to a potentially troubling sequence of events. This starts with the undermining of already shaky residual values by at least the amount of the price drops and subsequently puts at least that amount onto the cost of a lease term, in effect meaning its cars make less profit but have no price advantage. Given the EV market is so heavily driven by leasing, that latter point is especially moot.
It’s why all rivals bar Ford (which announced that it would drop Mustang Mach-E prices as a result of upping production and bringing in economies of scale) have resisted following suit. Having expended huge energy and marketing budgets stoking reputations and residual values to maintain the virtuous circle of competitive leases, they argue there are far more sensitive ways to stimulate the market than headline price cuts. Regardless, in the midst of the chip crisis, most are worrying more about reducing waiting lists than creating them.
But – and with Tesla, there’s always a but – there has been an immediate upside to the unorthodox move. It’s estimated sales in China rose 76% in the week after the announcement, at a time when overall sales fell by 15%. Anecdotally, other markets are reporting strong interest, and wavering buyers have been tempted in droves. And Tesla’s share price has bounced, today sitting at more than double its low at the start of the year.
The Elon Musk pendulum has swung yet again, but for how long? There’s an argument that buyers who moved quickly were smart, benefitting from the price drop before the lease deals took account of drops in residual values.
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Surely it must have been obvious to many industry analysts that a price drop was coming in the EV market. The component count and build costs are lower than ICE cars, apart from the battery the cars would be cheaper to make and everyone can see battery costs falling dramatically. the industry has been hiding behind the chip crisis for too long, and that itself will right itself with new capacity in multiple locations soon. Output will rise, unit costs will fall again and with that competitive pricing will resume. The players will not be the same, this world will not suit JLR and the like and will suit China's increasingly confident and competent producers. Musk himself must be at least considering an exit strategy or further expansion and consolidation. The driver for all this is a world need for non polluting, basic transport cars, and the world needs maybe a billion of them over the next 10 years. The big players have shot themselves in the foot by not gearing up to make them, instead looking only at short term profits and the 'affordable' £45,000 family car, like the Enyaq.
A cynical man might suggest that the chinese have sustained and strategised the chip crisis knowing that western policies would have driven producers exactly where they have. It would be a master stroke if so because it has given them the time, build capacity and crucial credibility building to fill the world gap themselves, allowing them to say they have saved the planet in this area at the same time.