How should Tesla go about dropping prices on a car?

[minortrekkie]

I think you're right on no. 2 but I think on no. 1 they defied customer expectations on just how volatile prices can be without having to go on this forum to understand this. It's one thing to swing prices by 5% but 20% is massive - this is certainly a buyer beware sort of moment and would help people decide if this was the right time to buy or not.

But ultimately, I think my 3rd suggestion is the solution to all this. What they did is similar to a mass layoff - you can't say anything before it happens and you will burn people. Employers typically give something to those impacted to soften the blow to their own image and help remaining employees know that if it happens to them, they won't be left with nothing otherwise they'd be looking too.
My suggestion is give something to impacted buyers that doesn't cost cash - e.g. Acceleration boost or EAP that helps stabilize the value of their cars as long as they own it. It does not have to make them whole (e.g. free FSD vs EAP) but something that eases the value gap will go a long away. Short-term Tesla will be fine but if they ever raise prices again, I think their demand curve will be much more elastic due to skittish buyers knowing they can be left out to dry at any moment. Auto consumers have fairly long memories of bad behaviors by car companies in the past so I don't expect that to change with Tesla. There are certainly hardcore fans that don't care but that's not enough to sustain the company.

And yeah 2023 model year = no uss cars.

Agree with point 3. I mean, 20% discount with less than month of ownership. Really feel the burn. My wife is like, see, we should have waited. Then of course it could have increased 20%. But man, 20% does hurt the value of my new car (2023 MX) because now, I can’t resale it unless I take a big hit, don’t plan to anyways. But to make whole for those who just bought and help Tesla do good in 22Q4, should come out and say hey, to our disgruntled believers (fan boys, retail Tesla shares holders, Tesla believers and defenders) let’s throw in something to make them happy. Look at what happens in China with the price cuts. Revolt! I’m sure those and us maybe will rethink about buying Teslas again, out of spite, or just not knowing today my car is worth $x but tomorrow it will be worth -20%. Ouch! I feel they need to do what it takes to make the sales, but I feel in a way, like I got the short end of the stick. Also, my 2023 MX has USS still, built 10/22. But markets are markets and can certainly swing both good for customers as well as bad for customers.

 

[bradtem]

Perhaps offering free charging for customers who bought recently. Sliding scale based on when you bought and perhaps going back 6 to 12 months. So if you bought the day before the cut, you get 2 years free charging. If you bought a year before you get one month, for example. It’s not perfect but should be a relatively cost effective way to acknowledge the customers.

Software add-ons are a better proposal. Not that free charging isn't nice, but it has a real cost. Tesla used to say they were billing for charging at a break-even basis. I don't think that's true any more as it got up very high, though it's come down a bit. As such, free charging is similar to cash in terms of cost to them, but it's cash to people who take road trips or can't charge at home, and less to those who don't.

On the other hand, acceleration, EAP and FSD don't cost them anything. (I think FSD will cost them something down the road as they will need to upgrade hardware in all cars of people who bought FSD should they ever get it to work.)

 

[Lenonator]

Perhaps offering free charging for customers who bought recently. Sliding scale based on when you bought and perhaps going back 6 to 12 months. So if you bought the day before the cut, you get 2 years free charging. If you bought a year before you get one month, for example. It’s not perfect but should be a relatively cost effective way to acknowledge the customers.

Doubt they will do it, but this is the most sensible remediation I've heard suggested so far...

 

[Rawkonyo]

Most car manufacturers try to ensure retention of existing customers and not relying only on new customers. A pretty good way of doing this is through management of a positive resale value of their vehicles. Look at Honda and Toyota for example. I understand the price cuts and while I anticipated a cut, it was not 20%+ in one day. One solution Tesla could take would be to activate FSD on 2023 vehicles before the price drop. This would increase resale value in the brand and show existing customer support without incurring a high financial cost to Tesla. Just my .02 and seriously doubt Tesla will do anything.

 

[Olle]

Of course they should do nothing.
First of all, non monopoly manufacturers don't set the prices, customers do, if supply follows a set trajectory. The price tag is a reflection of how much we as customers are willing to pay. If the willingness goes down, the tag goes down and vice versa.

The complaints leading to your post raises an interesting question though. Do people not understand what a sales contract means? Or are people just playing dumb in the hopes to create public outrage to get some personal benefit? I am afraid the latter is true.

 

[mrbulk]

TL;DR: but if they DO decide to rebate recent buyers, it might need to be on a sliding scale, eg., going back maybe 90 days seems reasonable, with The Most Recent buyers (the day before announcement) getting the full rebate of Tesla’s price adjustment (not counting the tax credits since the IRS has their heads up their you-know-whats and well beyond Tesla’s control as to what cockamamie price qualifying thresholds they may come up with next) and buyers of each earlier delivery day would get a prorated reduced amount - for example with the MYLR’s discount of $13,000 - divided by 90 days = $144.44 for each day earlier that you picked up your MYLR.

So if you got your MYLR 91 days ago, no luck. 90 days, you get a rebate check for $144.44, 89 days = $288.88, etc.

People who took advantage of Tesla’s own generous (Generous because Tesla didn’t have to do this) pre-2023 discount offers of $3750/$7500 would have their rebates reduced by an equivalent amount.

I’m sure there are many glitches in the details of this idea, but perhaps the overall concept might work and be more acceptable to a greater number of pissed-off Tesla customers.

 

[donblackie8]

So you feel betrayed -- others have said the same. So the question is, how would you have done it? Drop the price gradually? How gradually? Won't that stop people from buying, wanting to know when the price dropping is complete? Yes, part of this change is to qualify for the government's price caps. Would you have not done that, kept the price up above the caps? Gradually decreased it until it got there?

For the record.....I dont feel betrayed....on the contrary i took advantage of the price cuts and bought a MY yesterday for my mother.

But perhaps they could have defeatured the car somehow? That might offer a win/win?

 

[bradtem]

For the record.....I dont feel betrayed....on the contrary i took advantage of the price cuts and bought a MY yesterday for my mother.

But perhaps they could have defeatured the car somehow? That might offer a win/win?

Well, Tesla has two motives in these price cuts. The main one on several of the cars was to get them under the rebate price cap. That price they did not control.

But they are taking a massive profit cut with these price drops. It's very difficult to see how the sales increase from these price drops will compensate for the profit drop. I would like to see that math. Unless they have a ton more profit room that's not the reason.

Which means it's because they feel it's more important to have high sales now than max profits. There can be a few reasons for that. At these new prices, it is going to be very hard for the other players to compete. With an MYLR at $47K after rebate, what car is going to compete with that among the buyers looking for that sort of vehicle (crossover SUV-ish with 4WD and lots of range and pep.) Who is going to buy a non-Tesla if they were comparing with a model Y? Perhaps people who just really hate Tesla, perhaps because of Elon or a few other factors, but it's going to be tough to hate Elon that much.

So that crushes the competition, and keeps their market share up at the ridiculous level it has been. Which the stock market likes. Total sales in dollars are up if profits are down. That also provides some money to fund more charging network buildout, one of Tesla's key advantages. They also stop the slide into a world where they can't sell as many cars as they make, which investors didn't like.
But investors also know what happened. So we will see.

 

[Rawkonyo]

Of course they should do nothing.
First of all, non monopoly manufacturers don't set the prices, customers do, if supply follows a set trajectory. The price tag is a reflection of how much we as customers are willing to pay. If the willingness goes down, the tag goes down and vice versa.

The complaints leading to your post raises an interesting question though. Do people not understand what a sales contract means? Or are people just playing dumb in the hopes to create public outrage to get some personal benefit? I am afraid the latter is true.

Who knows. I'm just curious if Tesla considered repeat business from existing customers. With all the new competition coming out, customers from the past couple months some will have a bad taste for Tesla after a freefall drop in the value of their vehicle. I was only suggesting there may be a tool Tesla could use to prevent an exodus of existing customers while keeping pricing competitive with demand. Perhaps Tesla calculated retaining the existing customer base is not that significant.

 

[bradtem]

Who knows. I'm just curious if Tesla considered repeat business from existing customers. With all the new competition coming out, customers from the past couple months some will have a bad taste for Tesla after a freefall drop in the value of their vehicle. I was only suggesting there may be a tool Tesla could use to prevent an exodus of existing customers while keeping pricing competitive with demand. Perhaps Tesla calculated retaining the existing customer base is not that significant.

I think around <1% of car buyers have Teslas. They want to sell to everybody. Losing some sales from that small group would be annoying, but a blip in their overall sales plan. You attract a *lot* more people with new low prices than you could ever piss off. I mean it's not even close.

And consider this. If you just bought a Tesla for $65K, and you are looking for a 2nd car, would you rather they sold it to you for $65K or $45K? What would you really prefer?

 

[tonyz1]

But they are taking a massive profit cut with these price drops. It's very difficult to see how the sales increase from these price drops will compensate for the profit drop. I would like to see that math. Unless they have a ton more profit room that's not the reason.

Which means it's because they feel it's more important to have high sales now than max profits. There can be a few reasons for that. At these new prices, it is going to be very hard for the other players to compete. With an MYLR at $47K after rebate, what car is going to compete with that among the buyers looking for that sort of vehicle (crossover SUV-ish with 4WD and lots of range and pep.) Who is going to buy a non-Tesla if they were comparing with a model Y? Perhaps people who just really hate Tesla, perhaps because of Elon or a few other factors, but it's going to be tough to hate Elon that much.

So that crushes the competition, and keeps their market share up at the ridiculous level it has been. Which the stock market likes. Total sales in dollars are up if profits are down. That also provides some money to fund more charging network buildout, one of Tesla's key advantages. They also stop the slide into a world where they can't sell as many cars as they make, which investors didn't like.
But investors also know what happened. So we will see.

my guess is they built too much capacity relative to demand and there’s a lot of fixed costs there so they have to keep building. We’ve seen Detroit and the European car makers do similar moves in the past in the mass market.

I don’t believe it crushes the competition. Lowers profitability for the industry maybe but everyone is investing in Evs for the long term. Plus most automakers are too big to fail and treated as national champions. Races to the bottom never work.

I also think Tesla and Elon is now polarizing enough and the market mature enough where Tesla won’t be the default choice for a lot of people regardless of price.

 

[CapeOne]

Well, Tesla has two motives in these price cuts. The main one on several of the cars was to get them under the rebate price cap. That price they did not control.

But they are taking a massive profit cut with these price drops. It's very difficult to see how the sales increase from these price drops will compensate for the profit drop. I would like to see that math. Unless they have a ton more profit room that's not the reason.

Which means it's because they feel it's more important to have high sales now than max profits. There can be a few reasons for that. At these new prices, it is going to be very hard for the other players to compete. With an MYLR at $47K after rebate, what car is going to compete with that among the buyers looking for that sort of vehicle (crossover SUV-ish with 4WD and lots of range and pep.) Who is going to buy a non-Tesla if they were comparing with a model Y? Perhaps people who just really hate Tesla, perhaps because of Elon or a few other factors, but it's going to be tough to hate Elon that much.

So that crushes the competition, and keeps their market share up at the ridiculous level it has been. Which the stock market likes. Total sales in dollars are up if profits are down. That also provides some money to fund more charging network buildout, one of Tesla's key advantages. They also stop the slide into a world where they can't sell as many cars as they make, which investors didn't like.
But investors also know what happened. So we will see.

Don't underestimate what the competition is doing, and will be doing in the coming years as they shift more and more of their focus to EVs. Tesla currently still has around 65% share of the EV market but that is down from 68% in 2021 and 79% in 2020. With all of the new EVs coming to market over the next few years (especially lower priced models), some are predicting a rather rapid decline of Tesla’s share of the EV market going forward.

 

[bradtem]

my guess is they built too much capacity relative to demand and there’s a lot of fixed costs there so they have to keep building. We’ve seen Detroit and the European car makers do similar moves in the past in the mass market.

I don’t believe it crushes the competition. Lowers profitability for the industry maybe but everyone is investing in Evs for the long term. Plus most automakers are too big to fail and treated as national champions. Races to the bottom never work.

I also think Tesla and Elon is now polarizing enough and the market mature enough where Tesla won’t be the default choice for a lot of people regardless of price.

Frankly, I think most of us prior to this would have said we didn't think they had $13,000 of spare margin on the Model Y. And I still don't think the competitors do. For the competitors to match these price cuts (at least on the Y, Plaid and X) they are probably going to have to take a lot of pain. Which they may do, we'll see. Of course in the case of some of these you need to also have a car that's just above the price caps so you can add them when you bring it down. If planned, we would see a lot of cars that were exactly $54,9 or 79,9 after price cuts.

 

[minortrekkie]

I think around <1% of car buyers have Teslas. They want to sell to everybody. Losing some sales from that small group would be annoying, but a blip in their overall sales plan. You attract a *lot* more people with new low prices than you could ever piss off. I mean it's not even close.

And consider this. If you just bought a Tesla for $65K, and you are looking for a 2nd car, would you rather they sold it to you for $65K or $45K? What would you really prefer?

But seeing how the whims of price cutting goes, I’ll have to reconsider buying a second because tomorrow might be a better deal than today. It’s a rough situation and difficult decision. I love the cars the company. I would buy when my budget allows me but sometimes you have to scrape the barrel to get to your budget.

 

[tonyz1]

Frankly, I think most of us prior to this would have said we didn't think they had $13,000 of spare margin on the Model Y. And I still don't think the competitors do. For the competitors to match these price cuts (at least on the Y, Plaid and X) they are probably going to have to take a lot of pain. Which they may do, we'll see. Of course in the case of some of these you need to also have a car that's just above the price caps so you can add them when you bring it down. If planned, we would see a lot of cars that were exactly $54,9 or 79,9 after price cuts.

Tesla does have margin to give vs traditional automakers but I think what surprised me was they were willing to sacrifice it. Lowering the margin gets them revalued as an auto company vs. a tech company.

As for how much pain their competitors take, I think it depends on the competitor and their product line on how much pain they'll take. A lot of them have also invested a lot in EV capacity (fixed costs) so they might have a lot more margin to give then you'd think - Tesla never had a competitive advantage in manufacturing capability vs a traditional automaker. If I were Ford, I'd cut lower end Mach-E prices and keep the GT as a premium product. I'd also really focus on pushing out as many F-150 Lightning as possible. EV Trucks that look like normal trucks is a huge miss on Tesla's part. GM seems to have massive capacity that they've invested in so I think they will be fine. Tesla will race them to the bottom on some segments but won't be able to go after GM customers in other. I think BMW, Mercedes, and Audi will now have the luxury segment to themselves now that Tesla devalued the brand. I can go on and on but it's not going to put anyone major out of business.

Most vulnerable - maybe VW ID just cause it seems like it's been a disaster but it's a must-win category so they're not going to leave. Polestar I think might be affected but I think they will survive as a Tesla alternative for Tesla haters. I don't see Rivian or Lucid being impacted at all.

 

[Han Solo]

We've all seen the frustration here, both those who bought recently and those who now will see their used car value plummet. I felt it in 2019 after the price of my 2018 Model 3 dropped a ton. But aside from vent, I am trying to figure out, just how would we want a company to drop prices? Of things I have thought of, they all have problems:

1. They could not drop prices, ever -- but that can't be sustained in a competitive market or one where costs decline.
2. They could offer a rebate to those who bought recently -- but what about those who bought 1 day before that cutoff?
3. They could offer a rebate based on a sliding scale of how long ago you bought -- but there's still people who bought 1 day before that starts.
4. They could announce the price-cuts in advance -- but lose all sales until they happen.
5. They could keep margins thin so price cuts are not possible -- but that's not how you run a business.
6. They could give software goodies to people who bought before the price cut, like discounted FSD or premium connectivity -- this could work but what about those who bought FSD, and as always, what's the cutoff?
7. Other car companies drop prices through their dealers, with incentives, rebates and having the dealer able to offer deals to those who negotiate for them. Should Tesla start having dealers to let this happen?

Do folks have other suggestions? If Tesla did you wrong with these price cuts, how would you make it right if you were Tesla?

Tesla is in a difficult position. Clearly the current car at a higher price will not allow them to get the market share they ultimately need to achieve to maintain dominance in the industry, but on the other hand continually dropping the price infuriates existing owners (your best repeat buyers) and causes people to be MORE not LESS on the fence about considering Tesla because they believe the value of the car will go DOWN A LOT FASTER than any other EV they might purchase. This too is NOT good for Tesla.

In marketing 101 we learn that if life gives you lemons you make lemonade.

So, I think Tesla needs to do the same. This is FAR easier for them to do than you might realize, because Tesla has A LOT of potential offerings to provide to previous owners. So, let us say that the price drops by $10K, you then simply need to provide something that costs you LESS than $10K (hopefully a LOT LESS) that you can give to offset the drop in price.

Presto, number one on my list is FREE supercharging for life of this car. This DEFINITELY adds value and to be honest, NO ONE should be supercharging their car regularly if they want their battery to survive and MOST of us get EV charging prices at home in the 9-15 cents per KWH so the actual cost to do so at home MOST of the time is NOT a big deal. If you have to be cheap about it you could simply say FREE 5,000 miles per year of charging or whatever number works for your bean counters.

Number two, there is a *sugar* ton of options that we pay for that could be provided free for life. How about giving people a choice of such features that might include:

Performance Boost (really it's just software and costs Elon NOTHING)
FULL SELF DRIVING (again software costs Elon NOTHING)
FREE Advanced Connectivity (probably close to nothing since they already are paying for some connectivity)

And what about the car warranty itself extending it out or giving people an unusually HIGH trade in value for existing cars to offset the loss that occurs now. This causes people to trade in to buy ANOTHER Tesla and if that trade in value goes up, it helps the car value stay up too.

Now these are the cheap things that can be provided to increase value.

The more expensive, but strategically smarter move to take is to actually create a CHEAPER car option that has something less on it than the other cars and costs less to make. Ideally it would be a different body. Likewise in the future you might create a MORE expensive Tesla with a different body. To be honest I don't think you need to change things that much, but rather than come out with a new truck or some other weird vehicle that isn't at the heart of your market. Cover the higher and lower bases of your existing market. I mean Toyota for example has several lines of vehicles from low end to a high end LEXUS. It's not magic, it's marketing and what do you know. The cars often borrow many of the same parts and components, so the manufacturing is NOT TOO different.

Han