[UK] Price cuts

[colt033]

I remember playing a charity golf day and I was paired up with a chap who was sales manager for a local bakery company. Not fresh bakery but more those long life buns/cakes you see in petrol stations. I said to him 'yeah, I've bought your products before'. I asked him about a competitor product that sat alongside them and said they were always doing 50% extra free packs, or 2 for the price of 1 deals which made them better value.

He said two things to me. He said 1st thing, our product is better quality, but the second point was an interesting one. He said they do far too many promotions.

Expanding on that further, he said that the competitor has trained their customer base to expect promotions in such a way that it has now become impossible for them to sell the product without a promotion. He said that the frequency of the promotions has increased so much in the space of a year that the products became almost permanently on promotion. He also mentioned that he expected the business to go bust as a result. True enough, you don't see those cakes for sale anymore, the company has went bust. They accidently trained the customer base to only buy the product when it was on promotion, as the frequency of the promotions was simply too much.

Now I'm not saying the applies to Tesla but there is some learnings to be had from a story like this. If Tesla do more promotions at end of quarter, eg, cheaper deals from inventory or maybe free supercharger miles, or even both. Its amazing how quickly customers will respond to that. 2 quarters in a row of doing that would be the start of a pattern, and that would be a very unhealthy pattern to get into.

I'm not saying it would put Tesla out of business like the cake company, as Tesla has plenty of margin. But if you excuse the pun here, if you bake in a pattern of price cuts/promotions at end of quarter, then customers will respond to that new pattern very very quickly.

That’s a good point. Some other risks Tesla is taking include: signalling weakness, that they don’t think their products are worth as much as they once were; disillusioning people they don’t want to upset (people who already bought their product); reducing margin and profit; messing with their supply chain; devaluing their brand; and potentially starting a price war.

We should see a good indication of how this is going to play out in the next 6 months.

 

[Durzel]

I remember playing a charity golf day and I was paired up with a chap who was sales manager for a local bakery company. Not fresh bakery but more those long life buns/cakes you see in petrol stations. I said to him 'yeah, I've bought your products before'. I asked him about a competitor product that sat alongside them and said they were always doing 50% extra free packs, or 2 for the price of 1 deals which made them better value.

He said two things to me. He said 1st thing, our product is better quality, but the second point was an interesting one. He said they do far too many promotions.

Expanding on that further, he said that the competitor has trained their customer base to expect promotions in such a way that it has now become impossible for them to sell the product without a promotion. He said that the frequency of the promotions has increased so much in the space of a year that the products became almost permanently on promotion. He also mentioned that he expected the business to go bust as a result. True enough, you don't see those cakes for sale anymore, the company has went bust. They accidently trained the customer base to only buy the product when it was on promotion, as the frequency of the promotions was simply too much.

Now I'm not saying the applies to Tesla but there is some learnings to be had from a story like this. If Tesla do more promotions at end of quarter, eg, cheaper deals from inventory or maybe free supercharger miles, or even both. Its amazing how quickly customers will respond to that. 2 quarters in a row of doing that would be the start of a pattern, and that would be a very unhealthy pattern to get into.

I'm not saying it would put Tesla out of business like the cake company, as Tesla has plenty of margin. But if you excuse the pun here, if you bake in a pattern of price cuts/promotions at end of quarter, then customers will respond to that new pattern very very quickly.

Having had direct experience with a business following exactly this sort of behaviour, what the guy said and your assessment of it all is in my opinion spot on.

It creates other potentially unforeseen, tangential problems as well, namely:

• Customers who miss out on a promotion or were previously unaware of the "promotion culture" buy at the temporary full price, see the same product discounted by 20-30%+ the day later, and rightly get upset and either demand a partial refund, or threaten to send the products back and reorder them again (or not) to get the lower price. All of that adds cost and time, and that customer is left with a negative perception straight away.
  
  
• People rapidly lose confidence in a brand that regularly discounts its own products by such huge margins. Big discounts have the disquieting effect of suggesting that the product isn't as good as the price tag previously suggested, or its competitors. Big discounts diminish the lustre of a brand. Compare and contrast with Apple, for example.
  
  
• People lose confidence that the product they are buying will have a predictable residual value. Obviously that doesn't apply to buns and cakes, but it very much applies to Teslas. In discounting the cars and chasing volume Tesla have shown that they are not interested in protecting residual value for customers (other brands attempt to manage used car pricing, some very successfully so), which could mean that further discounts might come if demand doesn't rise to match output. This leaves customers - and finance companies - in an uncertain future position, with consequential short term effects (e.g. finance deals pricing in the uncerainty).

I don't think this single price cut will have a massive effect on Tesla, mainly because the world as a whole has changed. The scale of the discounts is surprising, however, because it's significant enough to give people pause for thought, as well as irritate the thousands of others who missed out, or were straight up lied to in calls about how the December inventory discount was a one off, etc.

 

[CWT3LR]

There is a well-rehearsed theory of demand in economics that is often given the shorthand of a "Veblen good". Part of the utility to the buyer of such a good is the feeling of superiority / success / exclusivity from having a product that few other people can afford. Price rises might result in increased demand, contrary to classical demand theory. Once the price drops, demand actually reduces for that product, since the cachet of ownership or exclusiveness has been diluted once it becomes affordable to many more people.

Tesla would make an interesting case study for microeconomists over just where the crossover comes - into becoming a "normal" good that follows typical price / demand curves, rather than the Veblen good that it seems to have been over recent years.

 

[Durzel]

I have seen people railing against finance for allowing "the lessers to get cars they can't afford" (an oxymoron of sorts). For some there does appear to be a sort of elitism that seeks to preserve Tesla (and their Tesla specifically) as a product that can't easily be obtained.

As it is, however, arguably with BIK being 0% and low interest rates Teslas have been well within the reach of your average consumer. They are aspirationally positioned, but quite accessible, unlike e.g. Porsche, etc which is arguably a much more robust "Veblen good".

So yeah, Tesla are in a sortof weird - possibly precarious - position where they are still seen as aspirational, but are actually reasonably common as EVs go nowadays. Definitely an interesting subject for study to see at what point they might lose their appeal as volume increases. It could be that people start to see it as more of a progenitor for EVs, rather than something aspirational in its own right.

 

[WannabeOwner]

If we don’t like “demand problem” we could call it an “over supply problem”. It amounts to the same thing

Yes, I agree "same", but I think the remedies and nuance is different. "Demand problem" is clickbate for "going bust/downhill" and Shorts whereas "supply problem" is a planned move - e.g. build a factory, intend to produce more, and unless there is a ready market then the assumption must be to reduce prices.

Even if Tesla is already at "best efficiency" such that they gain nothing from economy-of-scale they will still get benefit from building closer-to-market saving transport cost / time (one-off windfall for cash flow) and also e.g. in case of EU remove Import Duty from China.

Price cuts in USA are moving cars into the "Tax benefit available" price bracket, so more ready-audience at that price. Overall I reckon that, yet again, Tesla are scoring a goal not available to their competitors.

He said they do far too many promotions.

DFS being the best example

a quote from Mock the Week "Commercials That Never Made It To Air" : "The DFS sale has ended"

Some other risks Tesla is taking include: signalling weakness, that they don’t think their products are worth as much as they once were

People have short memories. There was a significant drop in Model-S/X price ... royally Tee'd off recent buyers (same as now), doubt many are still sore about it.

People rapidly lose confidence in a brand that regularly discounts

Whereas THIS ONE is reassuring expensive, Sir!

demand actually reduces for that product, since the cachet of ownership or exclusiveness has been diluted once it becomes affordable to many more people

I see Tesla's everywhere ... I reckon they no longer have any exclusivity ... maybe the new facelift Model-S will scratch that itch for a bit ...

Although I'm not sure which EV people would choose to buy if their specific reason for not buying a Tesla is lack of exclusiviity?

I guess for anyone never going out-of-range that is "Any EV", but what for long-range drivers .. .Taycan maybe? Mates who have one moan about charging when they are out-of-range, and one specifically takes a rural route, shorter / less Wh/mile, in order not to run out on a regular route. That costs him half an hour of his precious time and a fair bit of wear-and-tear on the driver ...

Perhaps a good time to start building Roadster ...

 

[Mistake Not]

So no updated price as yet from my leasing order (MY RWD) - but process is they need to delete my existing quote from my employers flexible benefit system - which will then allow me to run a new quote at the new, lower, price.

If I chose same model & config, my existing order and delivery date (2nd March) with Tesla stays the same.

Or, I can chose a diff model or config al(at new prices) but it would be treated as new order and obvs therefore be delivered later than March.

 

[CWT3LR]

Although I'm not sure which EV people would choose to buy if their specific reason for not buying a Tesla is lack of exclusiviity?

I guess for anyone never going out-of-range that is "Any EV", but what for long-range drivers .. .Taycan maybe? Mates who have one moan about charging when they are out-of-range, and one specifically takes a rural route, shorter / less Wh/mile, in order not to run out on a regular route. That costs him half an hour of his precious time and a fair bit of wear-and-tear on the driver ...

To answer both questions put: Lucid. Huge range, very exclusive.

 

[ACarneiro]

To answer both questions put: Lucid. Huge range, very exclusive.

Also a very unclear future, though…

 

[CWT3LR]

Also a very unclear future, though…

Lucid AND unclear? Surely not....

But if I had feck you money, I would buy one and get that feeling of novelty, exclusivity and being at the cutting edge. And if they went bust? Give it to my chauffeur.

 

[ACarneiro]

Oh, definitely one to buy if I won Euromillions, yes.

 

[Js1977]

I can see a the patterns emerging.... Personally never bought a car or a bike for that matter for exclusivity. Quirkiness, certainly but I can see why some are getting butt hurt and sounding like a broken record over in some cases even "owning" a Tesla. I would be more concerned with chav's with more money than me but then again that would be called eccentric at that point ... When the argument is not viable.." they are common as crap" ...what is common is this sort of practice...Bad form

 

[gherkin12]

morning all, quick question has anyone who hasn't taken delivery managed to get a price cut on their car? I've had to put my MY on hold until May and have been told I'm not allowed the price cut which seems odd to me. Someone who orders their car now will get it cheaper and before me (yes I know its my preference to delay delivery)

 

[Mistake Not]

morning all, quick question has anyone who hasn't taken delivery managed to get a price cut on their car? I've had to put my MY on hold until May and have been told I'm not allowed the price cut which seems odd to me. Someone who orders their car now will get it cheaper and before me (yes I know its my preference to delay delivery)

That sounds Wrong. I mean if nothing else why would t you just cancel and reorder at the new, lower, prices?

I’m lease and haven’t taken delivery, it the lease company have confirmed they will pass on the price cuts (although I’ve not had confirmation of the exact monthly amount this equates to).

 

[gherkin12]

That sounds Wrong. I mean if nothing else why would t you just cancel and reorder at the new, lower, prices?

I’m lease and haven’t taken delivery, it the lease company have confirmed they will pass on the price cuts (although I’ve not had confirmation of the exact monthly amount this equates to).

thats exactly what I thought seems a bit bizarre. If it was 500GBP we're talking about i probably wouldn't do anything but the fact thats its 5k is quite a substantial amount.

 

[Lord Farquad]

morning all, quick question has anyone who hasn't taken delivery managed to get a price cut on their car? I've had to put my MY on hold until May and have been told I'm not allowed the price cut which seems odd to me. Someone who orders their car now will get it cheaper and before me (yes I know its my preference to delay delivery)

How are you buying? There lots of examples where Tesla direct pass on price cuts but don’t enforce price increases. Are you a 3rd party lease?

 

[gherkin12]

nope tesla loan (which i can easily drop off of with an email to tesla - done previously).

just messaged them back asking why and explaining that i could just cancel the order and start again

 

[WannabeOwner]

have been told I'm not allowed the price cut

its contrary to their normal method which is "If there is a price cut after placing your order you get the "current price". If there is a price increase you get the "order price" [but if you modify your order that is recalculated from current price list]

Otherwise on price-cut everyone would just cancel and re-order which is probably way more Admin/Cost for Tesla

So on that basis you should receive the current, lower, price.

I reckon that it is likely that the person you spoke to doesn't know ...

 

[Mrklaw]

nope tesla loan (which i can easily drop off of with an email to tesla - done previously).

just messaged them back asking why and explaining that i could just cancel the order and start again

I’d definitely contact them to get a price correction. I suppose one wrinkle would be if the interest rate went up between the original order and now - have you checked the website currently for what the APR is? And presumably the finance was calculated based on your deposit and the monthlies on the old price - so that would need to be recalculated. But not difficult.

 

[James-R10]

I was told on the phone and got a follow up in writing as I picked up on the 12th saying after my complaint they would redo my finance st the newer price.

they since have gone quiet on me and after chasing since the 13th they are just refusing to talk about what they already said in writing and on the phone and telling me to return the car. They thought i was bluffing. Too bad for them im not.

 

[T-Lo]

Decided I'm going to hold off on my new order of a MYP performance until the HW4/new radar stuff is clarified in the next few weeks. Hopefully don't miss the price drop but plan to keep this car for 10 years or so and so not keen on missing out on anything major like this for FSD in the future.
Feel like I've just delayed Christmas Day for a month which sucks!

Glad I didn't pull the trigger! On the earnings call last night Elon confirmed HW3 cars will not be able to be upgraded to HW4 via retrofit. HW3 will still offer FSD but FSD in HW4 will be much better and safer.
They will need to crack on with the release of HW4 as that should probably kill sales right now for anyone looking for a long term vehicle. Not so much impact in the UK but I imagine this will hit risiduals if you have a late HW3 car vs early HW4 car from the same year