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Tesla’s price cuts and hikes explained: Why it seems like Elon Musk can’t make up his mind

Bynewsmagzines

May 5, 2023
Tesla's price cuts and hikes explained: Why it seems like Elon Musk can't make up his mind

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Elon Musk is using his advantage on pricing to gobble up more market share.
Christian Marquard/Getty Images
  • Experts say there is a method to Elon’s madness on pricing changes.
  • The latest price hikes could mean Tesla is done lathering on the discounts for now.
  • Tesla has more flexibility to change prices in real time than its competitors.

Elon Musk is changing his mind about Tesla pricing – again.

Tesla shoppers, investors, and analysts may be feeling some whiplash after the Tesla CEO countered six consecutive price reductions with a series of hikes in the U.S. and China in the past week. 

But there is potentially a method to this madness, experts say.

Recent hikes are a sign to investors that Musk is likely done price-slashing for now. That could send more buyers clamoring for a Tesla before the prices go back up to where they were at the start of the year – again aiding Musk in his quest to build and sell 2 million vehicles this year.

“We believe that the hikes show that prices are not guaranteed to fall further, signaling to buyers that purchasing decisions should not be delayed further, while also possibly indicating that the order book is starting to stabilize,” Deutsche Bank analyst Emmanuel Rosner wrote in a note to clients this week.

Earlier this week, Tesla raised the prices of the popular Model 3 and Model Y vehicles by up to $290 per unit. Even with this hike, base Model Y prices are down 24% since January and base Model 3 prices are down 14% over the same period. 

As long as Tesla and other EV values remain uncertain, shoppers should consider leasing the safest option for now, said Ivan Drury, an automotive analyst for car-shopping website Edmunds.

“When you lease, you can really bypass a lot of the problems that come with pricing,” Drury said.

Musk is flexing his pricing advantage on competitors

A pioneer of the dealer-free sales model in the U.S., Musk is now using that freedom to adjust his vehicle pricing in real time. Additionally, while every other car company in the U.S. right now struggles to turn a profit on their electric vehicle sales, Tesla has industry-leading automotive profit margins.

These two factors give Musk an advantage over his competitors on pricing, and he’s flexing that advantage more frequently as Tesla seeks to graduate from an early-adopter, niche brand to a mass-producer of vehicles.

A profit slide in the first quarter spooked some investors, but Musk has insisted that the company can make up the difference on price slashing with the value created in other parts of the business, such as autonomy. 

“I certainly wouldn’t bet against Tesla or Elon Musk on finding other places to squeeze a profit,” said Martin French, a managing partner at consultancy Berylls.

Tesla’s price war is still high-risk

Automotive analysts and executives still have words of warning for Musk on his price war, even as it has largely panned out for the executive so far.

Ford CEO Jim Farley recently warned of the importance of product freshness as prices fall, pointing to the lessons founder Henry Ford learned with the Model T in 1913.

For customers, all of the sweeping price changes can undercut Tesla’s reputation as a no-haggle brand, while confusing new customers and turning them off rather than drawing them in, Drury said.

“For customers it becomes like, ‘Wait, I thought you guys did set pricing, but I can even keep up with the price of this car it changes so much,” Drury said. “At the end, you’re left with the same jaded customer as you have in a dealership.”

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