American electric car maker, Tesla, has been on a price-cut spree in recent weeks. Following the price cuts in China, Japan, South Korea, and Australia, Tesla announced significant price cuts in the U.K., the U.S., Germany, France, the Netherlands, and Norway. On the surface, Tesla’s “price butcher knife” has spread to the world, and a price war is inevitable. Tesla’s repeated price cuts in China have plunged the electric car market in the region to less than $30,000. Tesla’s price cuts will certainly hit the Chinese electric car market hard and there will be a price war.
However, not many electric car brands are worried, this is because the price cuts were expected. Nevertheless, they will worry because their prices are still high. In all, Tesla did not activate discounts to start a price war, the company had to cut prices because of its weak growth. Tesla’s order volume in the Chinese market is rapidly drying up, with a backlog of 25,000 orders in November 2022. It also has less than 6,000 orders left in the first week of December. If it can’t be sold anymore, the price will naturally drop.
Tesla activates five price cuts in four months
Many Tesla owners, especially those who have bought Teslas in recent months, are dissatisfied with the sharp price cuts of all Tesla models in China. Some owners claim that they have suffered a loss of over $4000 within a week. They claim that there is “no compensation from Tesla, not even an apology”. There are also car owners who organized to go to Tesla to “protect their rights” and contributed a funny joke:
Tesla’s price cuts were so steep that its selling price in China hit a record low. Specifically, the starting price of Model 3 has dropped by 36,000 yuan, the starting price of Model Y has dropped by 29,000 yuan, and the price cuts for the rest of the two models have ranged from 20,000 to 48,000 yuan. Such a large drop makes the owners who just bought Tesla feel cheated. If Tesla’s price rises, car owners who previously bought at a low price will not pay the difference.
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Why the price cuts?
There are two reasons for Tesla’s price cut this time. One is that orders have dried up, that is, consumers don’t want to buy them. The other is that the stock price has dropped, that is, investors have no confidence.
Before that, the company never worried about demand and pursued capacity. Musk has mentioned Tesla’s goal many times, that is, the annual production capacity will reach 20 million vehicles by 2030. Thus, it is necessary to form production capacity in all continents of the world. After Tesla’s Shanghai Gigafactory became a benchmark, it was reported that the company would build a second Gigafactory in other Chinese cities.
Who would have thought that Tesla’s production capacity is growing rapidly, but demand has become a problem? Demand has fallen and production has been suppressed. According to Bloomberg, Tesla’s expansion plans for its Shanghai factory have been delayed, and its Shanghai Gigafactory had suspended production in December 2022, with car shipments dropping to about 56,000 vehicles that month. Moreover, the factory’s Spring Festival holiday is scheduled for two weeks from January 20 to January 31, which is in great contrast to the 3-day shutdown in 2021. It is more difficult to realize Tesla’s desire to build super factories in other cities outside of Shanghai.
Not only in China, but also in the global market, Tesla has encountered a demand crisis. TroyTeslike statistics show that as of December 8, its global order backlog drops from 476,000 in July to 163,000. With such a small demand, the super factory output can not go out easily. To solve the problem of oversupply, there are generally two options. One is to allow sales growth to slow down, and the other is to cut prices to ensure growth. Musk obviously chose the latter.