Why there is so much consternation about Tesla rapid pricing changes

[jbcarioca]

This forum and almost all press reports seem to devote tremendous energy defending or attacking Tesla's rapid changes in pricing and option treatment. Why? The answer is very simple and obvious but almost never mentioned either by bulls nor bears:

All other manufacturers: Because every one has dealers, they set wholesale prices for dealers, then provide:
-dealer incentives,
-consumer incentives,
-fleet buyer incentives.
those three have different combinations;
-rebates for one of those or all three,
-quota based rebates,
-special financing terms,
-options packages for a huge variety of choices.
then there are seasonal promotions;
-end of reporting periods (e.g.month, quarter, year),
-model year clear-out,
-new model changeover.
finally the ever-popular financing options
called "subvention: paid by manufacturer/distributor cost reduction of part/all financing cost)
-in retail, wholesale, floor planning, fleet flavors,
-local, regional, national choices,
-retail- paying all or some of loan interest,
-wholesale-the same as retail but often with buyback terms,
-lease- residual value guarantees, money factor subvention.
all those things and almost endless variety of maintenance, servicing, and other features that subsidize the distribution system

Nobody seems to notice that all those things are done every year and every season and that resale value for every vehicle plummets with annual model changover, even more so when major changes take place.

Tesla actually has none of those for dealers because they don't have dealers. Instead Tesla announces or simply begins to offer different terms as conditions change. Each Tesla change is described as evidence of instability or catastrophic disarray. Since Tesla eschews annual model change every equipment, option, feature change is further proof of instability.

Every manufacturer tweaks their terms every day/week/month and such information is dutifully printed in Automotive News (for US) in nice tables for 'Consumer' or 'Dealer' incentives.When other items are tweaked they are also reported as soon as available. Many countries have similar reporting. No major news, just industry gossip.

When Tesla does anything remotely analogous it is definitive proof of impending disaster.

Why? It is all because Tesla has a different business model that threatens the established order.

Lastly, here on TMC we all know most of that and still we bleat that the resale value of our cars drops because pricing is reduced. My latest Tesla delivery a P3D+ cost me US$7,000 more in September 2018 than it would if I bought the same car today. So, I have lifetime Supercharging free, which I would not have now. Am I angry? No, I think it is just fine. That is part of buying a new car. All of us have always known that. Only Tesla, among all manufacturers, makes that explicit.

So, for everyone who is complaining, please stop! You're helping nobody. You'll only suggest that Tesla should hide reality as other manufacturers try to do.

When complaining about lease rates or financing rates, just remember that with Tesla you're not tricked by 'residual value subvention' or 'interest rate subvention' into thinking you have a better deal than you really get. While you're at it you need to know that you're not getting an artificially elevated trade-in value on your car either.

Frankly, many of us here are feeding the FUD by misunderstanding the fundamental differences with Tesla.

All these things get in the way of us discussing the actual problems we have, and obscure the remarkable achievements of which we are the recipients.

If we want to complain let us please concentrate on customer service, delivery process, parts supply and other things that actually need improvement rather than criticizing the very things that benefit us the most.

 

[jcasetnl]

Pricing strategy is not just because of the incentives and bureaucracy of dealer networks. They also exist to set consumer expectations. When you buy a 60k car, part of ownership is the cachet that goes with it. If your 60k car is now just a 50k car, that doesn't feel good. Imagine if you were someone in Asia where the Model S Performance dropped a mind-boggling 44%? Owners protested outside Tesla stores there! We can debate whether this cachet is ridiculous or not, but the bottom line is it doesn't matter: some people buy cars as status symbols, especially luxury cars. And their money is as green as yours or mine.

Additionally, Tesla's rapid price changes give customers pause. Is the price going down again next week? Maybe I should wait. Traditional dealers do have end of season/year incentives but then the choice is much harder: wait several months for MAYBE an incentive to come along or just pull the trigger now? I was looking at a particular vehicle but in no hurry to buy because my current car runs fine, but they didn't offer any incentives for TWO YEARS on that particular model.

Lastly, I agree the vertical integration creates advantages like you said but I believe currently Tesla is really misusing those advantages by confusing and upsetting current and future owners. The changes, frankly, are so frantic they come off as desperate. As a mostly luxury brand, desperation is the absolute dead last thing you want customers to sense.

 

[jbcarioca]

Pricing strategy is not just because of the incentives and bureaucracy of dealer networks. They also exist to set consumer expectations. When you buy a 60k car, part of ownership is the cachet that goes with it. If your 60k car is now just a 50k car, that doesn't feel good. Imagine if you were someone in Asia where the Model S Performance dropped a mind-boggling 44%? Owners protested outside Tesla stores there! We can debate whether this cachet is ridiculous or not, but the bottom line is it doesn't matter: some people buy cars as status symbols, especially luxury cars. And their money is as green as yours or mine.

Additionally, Tesla's rapid price changes give customers pause. Is the price going down again next week? Maybe I should wait. Traditional dealers do have end of season/year incentives but then the choice is much harder: wait several months for MAYBE an incentive to come along or just pull the trigger now? I was looking at a particular vehicle but in no hurry to buy because my current car runs fine, but they didn't offer any incentives for TWO YEARS on that particular model.

Lastly, I agree the vertical integration creates advantages like you said but I believe currently Tesla is really misusing those advantages by confusing and upsetting current and future owners. The changes, frankly, are so frantic they come off as desperate. As a mostly luxury brand, desperation is the absolute dead last thing you want customers to sense.

Your post supports my argument perfectly. All those things you state are absolutely universal in the auto industry, but nearly invisible to end consumers, by design. Tesla is visible, so people get upset.

For example nobody much commented when BMW 7-Series has discounts of 20% and more from time to time, even when they just bought one for the higher price. Why? The changes are not really noticed. Tesla announces them.

You are arguing that because we know what Tesla does, that demonstrates poor management by Tesla. Bluntly, your response proves my point.

As for two years without incentives on a given model. If you had access to dealer and financing data it is nearly a certainty that whatever model you are discussing has had incentives during any two year period. That is true even for high end exotics such as Ferrari and Rolls Royce.

 

[TheTalkingMule]

Transparency and no sales process is the future. Period.

 

[neroden]

Transparency and no sales process is the future. Period.

I wish.

Amazon has adopted the "random constant price change" business model. Apparently nobody is bothered by this except me (I find it seriously annoying). Tesla is falling in line with the "no transparency, wild changes in price" model which has become the new norm. They might as well just list the cars on Amazon and let Amazon's algorithms change the price every 4 hours.

 

[TMThree]

Because it sucks when you buy a new car with AP and then AP price drops by $1000 a few days after the return period and you haven't even gotten to use it beyond testing it out a few times. And if that's not bad enough, while you were waiting for delivery, the price went down by 6% then up by 3% and after the $1000 price drop of AP, we're hearing about a $3000 price increase on FSD.

It's good to do what is needed to keep Tesla up and running, but customers are constantly feeling like they have been screwed. Sometimes it works out in your favor but I suspect it hasn't for most.

 

[Webeevdrivers]

Because it sucks when you buy a new car with AP and then AP price drops by $1000 a few days after the return period and you haven't even gotten to use it beyond testing it out a few times. And if that's not bad enough, while you were waiting for delivery, the price went down by 6% then up by 3% and after the $1000 price drop of AP, we're hearing about a $3000 price increase on FSD.

It's good to do what is needed to keep Tesla up and running, but customers are constantly feeling like they have been screwed. Sometimes it works out in your favor but I suspect it hasn't for most.

You would hate it here. The car dealers have sales all the time and for any reason. Even then it has a lot to do with your negotiating skills. Even your gender. No two people get the same price...EVER.

 

[TMThree]

You would hate it here. The car dealers have sales all the time and for any reason. Even then it has a lot to do with your negotiating skills. Even your gender. No two people get the same price...EVER.

Yes, I hate normal car purchasing. Which is why the no-haggle, no middle-man-dealer approach by Tesla was refreshing. Only, we're finding out it's not so different in the end.

Tons of random price changes without warning, tons of people getting random freebies like wall chargers, or people getting thousands off with inventory vehicles with special deals that are available only if you happen to talk to the right person on the phone.

If I sound bitter, I'm really not upset about vehicle price changes. I accept that, and I expect it. I just dislike the software price changes. Being told you have to buy AP with vehicle or you pay $1000 more post-purchase, only to find you just paid $1000 more than you had to... there is no reason for that.

 

[omgwtfbyobbq]

I find it mildly annoying, but only because I know Tesla did provide end of quarter/year discounts and incentives, I generally try to wait for companies to provide those, and I didn't wait for those with my 3. On the other hand, I'm OK with it overall because I support Tesla's mission, although I feel like Elon really exaggerates things to get media and consumer attention. With that said, if Elon wasn't as dramatic as he has been, who knows, Tesla might have actually gotten into more financial trouble over the past few years.

 

[jbcarioca]

I wish.

Amazon has adopted the "random constant price change" business model. Apparently nobody is bothered by this except me (I find it seriously annoying). Tesla is falling in line with the "no transparency, wild changes in price" model which has become the new norm. They might as well just list the cars on Amazon and let Amazon's algorithms change the price every 4 hours.

I do agree with you, mostly. However, in the world of today almost everything has adopted the same pricing technology (highly analytic, constant variability) that has long been a part of airline tickets and hotels., Motor vehicles have long done that, but the process was largely obscured by the dealership indirect pricing featuring one by one negotiations.

Factually, almost all of us have been under the illusion that somehow we would avoid that reality with Tesla. I say 'illusion' because we imagines that centrally fixed prices would somehow protect us from price volatility. 'Ain't gonna happen'! All of us who are avid Amazon Prime customers are probably well aware of that, and either like it, tolerate it or rail against it depending on mood or perception. I am very much in that camp myself.

FWIW, in my longest-running incarnation I helped develop pricing algorithms for several industries, including both automotive and other merchants. Mostly I have deluded myself to think I avoided my own techniques.

As an aside a couple of decades ago we were hired to help develop a series of automotive F&I products. Great, and we were happy to do it. Then it transpired that one of my team, highly qualified and analytic, bought a new vehicle from one of our client's dealers, who knew of our role in designing their F&I products. Our very smart guy bought an extended warranty at the price quoted by the dealer F&I person, which included a 200% (two hundred percent) dealer markup. He had the previous day completed a risk analysis of that exorbitant policy and did it anyway.

That aside is only to illustrate how modern pricing algorithms mostly don't bother people enough to change their behavior, except to respond to the inducements. In sum, the more the world changes the more it stays the same.

Nobody should be surprised or even dismayed, because Tesla is far more open than anybody else. Bluntly, folks, we seem to be irritated that Tesla actually tells us. Are we all suggesting that the problem is too much disclosure? It seems that way to me.

 

[durkie]

I feel like a lot of us remember Elon saying that "everyone pays the same price" and that they don't do special discounts for friends and family, and that even he pays full price for the cars. It seemed like a formal policy and it was refreshingly clear and upfront.

I think that's where a lot of this dismay comes from. That, and we're all shellshocked by eternal TSLA SP volatility and hate seeing it spread in to their product pricing.

 

[commasign]

Well said. The good news is the vast majority of Model 3 owners have real lives and don’t follow Tesla in the news or check TMC, reddit, or Elon’s Twitter every 30 seconds like those of us here.

Last month I told my sister-in-law about the $2000 discounted full self driving upgrade available for her Model 3 and she said “what’s full self driving?” Ignorance is bliss.

 

[Pismo]

Additionally, Tesla's rapid price changes give customers pause. Is the price going down again next week? Maybe I should wait. Traditional dealers do have end of season/year incentives but then the choice is much harder: wait several months for MAYBE an incentive to come along or just pull the trigger now? I was looking at a particular vehicle but in no hurry to buy because my current car runs fine, but they didn't offer any incentives for TWO YEARS on that particular model.

I would hate to tell you about buying Airline tickets.. (Sorry, sarcastic) - However, the price changes are frustrating, but as someone else will mention, its the new 'millenial' style of consumerism. Amazon, Airline tickets, etc, and it all comes down to Opportunic cost. How long are you willing to wait, and for me, I decided to just build my ideal car, and price point and wait. I know at the least, the car I buy is what I wanted and, at a reasonable price.

 

[jerry33]

Yes, I hate normal car purchasing. Which is why the no-haggle, no middle-man-dealer approach by Tesla was refreshing. Only, we're finding out it's not so different in the end.

In my opinion, there is a big difference. When you go to a regular car dealer, the sticker price is far below ($10-$14K) what you actually end up paying. With Tesla you pay the price shown plus delivery and tax and no changes. Now the sticker price may change from day to day, but once you place an order it's fixed.

 

[ac_power]

When you buy a 60k car, part of ownership is the cachet that goes with it.

Very true, even as it's rather emotional.
But on the practical side - how about all those used teslas which lost thousands in value in one night no announcement ? Some people prefer selling privately (in fact, those cars are usually gems, compared to trade-in ones), and often buy new replacement before selling old one. I don't want to be the person who suddenly finds himself in $5..15K gap.

For example nobody much commented when BMW 7-Series has discounts of 20% and more from time to time, even when they just bought one for the higher price. Why? The changes are not really noticed.

Two points: 1) those discounts are temporary so perceived value doesn't change; 2) traditional luxury cars lose value every minute anyway, unlike teslas.
Past year model discounts do happen at dealers as well, but hope nobody has difficulties forecasting them and acting appropriately.

 

[dcdttu]

Whatever the reasoning, these dramatic shifts in pricing, autonomous pricing, and trim offerings don't sit well with a lot of people. And the people, including Elon, that state other car-makers do the same thing and nobody cares is not great. I mean, when did Tesla start following the practices of other car-makers? And I highly doubt *any* car-maker has made this many changes to one car's price, trim offerings and autonomy in as little as 2-3 months.

 

[Ed Freniere]

I have personally felt consternation about the fluctuating price of Model 3 Enhanced Autopilot.

I took delivery of my Model 3 in November 2018. I got long range, dual motor, and the required "premium upgrade." I did not order the EAP, as I judged it not worth $5000 extra, even knowing it would cost $7000 to order later. Almost immediately after delivery, I was granted a 30-day trial of EAP. I liked the traffic-aware cruise control, but I still wasn't convinced.

Sometime later, the price for the after-purchase EAP upgrade was reduced to $4000. Still too much.

Then it was reduced to $2000. At this price, it was worth considering. I thought about it, talked to my wife about it, and thought about it some more. I finally went to order it, only to find the price back at $4000.

Then more recently they reduced the price back to $3000. I decided it was worth it at that price, and who knows what price it will be later, so I hurried up and bought. Now I hear the price is going up again. I can't track the price at tesla.com anymore, because they don't show me the price - they know I already bought.

It does feel a bit like playing poker.

 

[KenC]

And Tesla should know that the constantly changing prices annoy owners and put off potential buyers. That’s not helping is it?

 

[jbcarioca]

...

Two points: 1) those discounts are temporary so perceived value doesn't change; 2) traditional luxury cars lose value every minute anyway, unlike teslas.
Past year model discounts do happen at dealers as well, but hope nobody has difficulties forecasting them and acting appropriately.

1) those discounts have been perennial for some brands. 'perceived value' is hard to measure accurately but residual value losses when actual sales price drops are not. Many buyers are exceedingly well-informed about those impacts, but most are not.
2) Frankly all vehicles lose substantial value the moment they are titled, the very rare exceptions have not lasted long. Tesla vehicles are not exceptions, only the early models had modest depreciation or even appreciation. Once any builder enters volume production the scarcity value diminishes very rapidly.

Despite those things Tesla actual resale values do prove that they retain value better than almost all potential competitors. All those pricing oscillations will not mean much so long as 'new' is more costly than 'used'. ASP's, we'll learn in a few days, are holding up nicely. If the actuals prove me wrong I am quite prepared to suffer the consequences of hubris. Actually I don't think this is hubris.

 

[u00mem9]

As a buyer, you can be accommodating or you can be pissed at the bipolar pricing decisions.

But unfortunately, the few companies that dictate leasing residuals are going to punish Tesla for these moves. Residuals will probably reflect the lower (end of quarter) transaction prices and that will increase lease cost and ultimately make Tesla a more expensive car for the consumer.

Very short sighted on Elon and co side and makes me wonder what crisis has justified these dramatic changes every 3 days. They certainly don’t suffer from choice supportive bias!