Voltage Vendetta: Rethinking Tesla's EV Price Strategy

I used to drive a Tesla, I've since transitioned to a different electric car, and I am happy. While I enjoyed my time with Tesla, I've moved on. In my opinion, it is a good car, but not the best, yet.

The widespread adoption of electric vehicles (EVs) has undeniably been significant and shows no signs of slowing down. In this article, I'd like to explore into what I believe could be a strategic move within the EV market (one that I hope to see unfold, because it could be beautiful).

In 2020, Tesla dominated the EV market in America, accounting for 80% of sales. It was a remarkable feat for a market traditionally dominated by more conventional brands. But times are changing. Other manufacturers like Mercedes-Benz AG , 宝马 , 大众 , 通用汽车 , and 福特 are entering the fray with ambitious plans to stake their claim in the EV market.

Since around 2017, Tesla seems to have adopted a dynamic pricing strategy, similar to what companies like Uber or Cinemark employ. This strategy allows for adjustments in pricing based on various internal and external factors, offering a surplus of tools to be used in multiple scenarios. Usually, resulting in value creation.

Over the past few years, we've witnessed strategic price cuts and occasional increases from Tesla. Analysts have speculated on various reasons behind these fluctuations, from demand issues to overproduction to outdated models, and my favorite, gain of scale.

However, I propose a different perspective.

With Tesla 's market share in the US EV segment dropping from 65% in 2022 to 55% in 2023 according to Cox Automotive Inc. , it's natural to expect competition to intensify. In my opinion, to defend its position, Tesla is resorting to price reductions. While this move aims to push more units into the market, it also creates an opportunistic cost barrier for competitors. How so?

Actions

For Tesla's competitors, heavily investing to penetrate the EV market, the shifting baseline of what constitutes a "competitive" price target poses a significant challenge. Rather than considering adjustments to their strategies, product managers find themselves pondering just how far Tesla is willing to go to disrupt their efforts.

For Tesla, the cost (or would be an investment) isn't merely monetary; it also carries consumer’s reputational implications. Many Tesla owners have experienced a steeper depreciation curve, which, in my view, is a temporary and artificial impact. I believe this effect will fade once prices rebound, as they inevitably will.

This uptick in prices will also lead to appreciation in the value of used Tesla models. While this approach may seem risky, it appears to be, in my opinion a calculated move on Tesla's part.

Reactions

Conversely, other Vehicle Manufacturers (OEMs) have yet to officially adjust the Manufacturer's Suggested Retail Prices (MSRP) of their EVs. As a result, their vehicles face an even more aggressive depreciation curve compared to Tesla's models. This disparity has led some of their consumers to question their choices, with a few vowing never to purchase an EV again.

The consequence within the conservative landscape of Vehicle Manufacturers will be to reassess their timelines for introducing new models. They'll also scrutinize their production volumes and calculate the necessary costs to remain competitive in this evolving market.

Result for Tesla

Essentially, Tesla's strategic pricing approach affords them invaluable time—a window to refine and bolster their upcoming models, positioning themselves for sustained dominance in the years ahead.

As for those dissatisfied consumers, would they consider purchasing Tesla vehicles again? Consider this: while their cars may experience artificially aggressive depreciation, this inadvertently buys Tesla crucial time. If a Tesla owner is unhappy with their vehicle's market value but content with its performance, they're likely to hold onto it until prices rebound. And what if a significant portion of consumers adopt this stance?

With fewer cars available on the market, prices are naturally bound to rise over time (backup plan). This scenario provides Tesla, again with time to unveil their new models and recapture these customers when they are ready to go back to the market.

Conclusion

This strategic maneuver highlights the value inherent in Tesla's approach. By possibly prompting OEMs to rethink their plans and "encouraging" consumers to retain their vehicles, Tesla effectively shapes the future market landscape. Whether you view it as genius, conspiracy, or mere luck, there's undeniably a touch of magic in challenging conventional commercial concepts.

Ultimately, this feat was made possible because Tesla controls its commercial channels. This autonomy enables Tesla to dictate its destiny and cultivate its own competitive edge, generating substantial business value for their shareholder and believe it or not their clients.

For months, I personally credited these price cuts to excess production and demand issues. Now, I'm beginning to realize the elegance of some commercial strategies. They're not just functional; they're a form of artistry. Whether intentional or by chance, this strategy underscores the timeless saying: "The greatest trick the Devil ever pulled was to convince the world he didn't exist."

This article stems from original discussions I had with Felipe Smolka and Justin Dudeck . Over the years, we've bounced ideas off each other, often finding ourselves on opposing sides of the fence, specifically in regard to EV market. But therein lies the beauty — there's a scenic method to our madness if you're willing to shift your perspective.