Photo: Tesla | Edited
Tesla's pricing strategy became an enigma in the past months as vehicle pricing dropped and raised seemingly without reason. In the latest move, Tesla hiked the Model 3 and Model Y prices across many regions. The change is interesting, considering the burgeoning Model 3 inventories.
Production has always been a problem throughout Tesla's history, with customers waiting months to get their electric vehicles. In the past half a year or so, things have changed, and demand has come into focus as Tesla's inventory is building with unsold cars. Most are Model 3 and Model X, although Model S numbers are also rising. People were expecting some price adjustments, but Tesla chose to go nuclear on prices on January 12. Since then, everybody has talked about a price war, with some trying to connect the dots between the price cuts and the growing inventory.
The connection is certainly there, but it's hard for the outside eye to see it clearly. Our data has a significant latency, so many price movements Tesla operated in the past months appear chaotic to most people. If we look at the Model Y and Model 3 data for the US market, Tesla operated three price cuts for the former and four for the latter in 2023. The Model Y also saw three price hikes (MYLR) or even four (MYP) during the same period, while the Model 3 price was only raised once, on May 1. Both models are still cheaper now than they were after the massive January bloodbath.
The explanation is that Tesla moved to a dynamic price strategy, and these small changes are here to stay. Tesla uses a complex model to automatically adjust prices, with decisions made on a daily basis. During the Q1 earnings call, Elon Musk explained to investors that Tesla uses real-time data regarding production, orders, and inventories. Tesla has a massive advantage over legacy carmakers, which sell their vehicles through dealer networks. This long sales chain makes feedback more complicated, and decisions are made after waiting a long time to see how the sales are going.
On the other hand, Tesla has almost instant feedback regarding sales throughout the world. When Tesla operates a price change, it sees what happens almost immediately and can adjust the course appropriately. "Seven days a week, I look at that email, and so does the rest of the team. We try to make the least dumb decision that we can. On balance, I think our decisions are pretty good," said Elon Musk during the Q1 earnings call.
This is the context to judge the latest price adjustments affecting the Model 3 and Model Y. On May 1, Tesla raised the prices by several hundred US dollars or equivalents across several markets, including the US, China, and South Korea. All Model 3 and Model Y trims in the US are now $250 more expensive. Although most prices were unchanged in Canada, the Performance versions were hiked by 1,000 CAD (740 USD). In South Korea, all prices increased by 357,000 won ($270), whereas in China, they were raised by 2,000 yuan ($290).
While it's puzzling to see Model 3 prices increasing when there are so many cars in Tesla inventory, we're sure there's a reason behind it. Demand has likely caught up, and we will see this happening in the coming weeks. Still, we wouldn't be surprised to see more price swings at Tesla by then.
The connection is certainly there, but it's hard for the outside eye to see it clearly. Our data has a significant latency, so many price movements Tesla operated in the past months appear chaotic to most people. If we look at the Model Y and Model 3 data for the US market, Tesla operated three price cuts for the former and four for the latter in 2023. The Model Y also saw three price hikes (MYLR) or even four (MYP) during the same period, while the Model 3 price was only raised once, on May 1. Both models are still cheaper now than they were after the massive January bloodbath.
The explanation is that Tesla moved to a dynamic price strategy, and these small changes are here to stay. Tesla uses a complex model to automatically adjust prices, with decisions made on a daily basis. During the Q1 earnings call, Elon Musk explained to investors that Tesla uses real-time data regarding production, orders, and inventories. Tesla has a massive advantage over legacy carmakers, which sell their vehicles through dealer networks. This long sales chain makes feedback more complicated, and decisions are made after waiting a long time to see how the sales are going.
On the other hand, Tesla has almost instant feedback regarding sales throughout the world. When Tesla operates a price change, it sees what happens almost immediately and can adjust the course appropriately. "Seven days a week, I look at that email, and so does the rest of the team. We try to make the least dumb decision that we can. On balance, I think our decisions are pretty good," said Elon Musk during the Q1 earnings call.
This is the context to judge the latest price adjustments affecting the Model 3 and Model Y. On May 1, Tesla raised the prices by several hundred US dollars or equivalents across several markets, including the US, China, and South Korea. All Model 3 and Model Y trims in the US are now $250 more expensive. Although most prices were unchanged in Canada, the Performance versions were hiked by 1,000 CAD (740 USD). In South Korea, all prices increased by 357,000 won ($270), whereas in China, they were raised by 2,000 yuan ($290).
While it's puzzling to see Model 3 prices increasing when there are so many cars in Tesla inventory, we're sure there's a reason behind it. Demand has likely caught up, and we will see this happening in the coming weeks. Still, we wouldn't be surprised to see more price swings at Tesla by then.
Q1 ER Musk..” we're just looking at and saying, okay, what does it take to achieve a clearing price for our vehicle production? And then we make a pricing change and we see what happens immediately and adjust the course. So we're adjusting course. And we're thinking about it… pic.twitter.com/tJPqcOAoD3
— Sean Khatibi (@Sean_khatibi) May 2, 2023
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