Tesla's April China Sales Numbers Tell How Wrong Playing With Prices Can Go

The company sold 75,842 units made at Giga Shanghai, including both the internal market and export units, which was apparently a good result when compared to April 2022, but it was 14.7% worse than the sales in March – when prices were higher. For a company that insists that it has no demand problems, that is hard to explain. For the record, the sales in April 2022 were meager: only 1,512 units.

The international health crisis was hitting hard in China, and Giga Shanghai was closed due to COVID-19. Elon Musk did not defy the Chinese government shutdown orders, which probably prevented him from tweeting that if anyone were to be arrested, that should be him. He only did that at the Fremont factory in May 2020. Tesla's compliance with the Chinese orders led to low sales that were pretty easy to beat.

In March, the company sold 88,869 cars made in China, which includes those exported to Europe. In other words, and despite the record the Model Y is breaking more recently, the lower sales numbers probably also have to do with lower European demand. Insurance numbers suggest Tesla sold a bit more than 29,000 battery electric vehicles (BEVs) to customers in China, which leaves almost 47,000 units for export markets.

Although it is common for Tesla to send more BEVs abroad at the beginning of each quarter, the company's inventory is building up. That said, it could have sold many more vehicles in the Chinese market than it did. According to CNEVPost, the reason for that could have been the company's pricing policy.

Chinese customers have taken the price reductions in a pretty bad way. Some even invaded and vandalized Tesla Service Centers after paying prices that were reduced just days after their purchases. The current theory is that possible new buyers decided to wait for the prices to drop even more before buying a new Tesla.

That theory is confirmed by several moves from the BEV maker. The first happened on April 14, when Grace Tao shared several charts on her Weibo account. Tesla's vice president of external affairs wanted to show how the company's Chinese products cost less in China than anywhere else they were sold. In other words, she wanted to show there was no way they could get any cheaper. It did not work.

That was when Tesla decided to raise prices for the Model 3 and Model Y. On May 2, the company started asking RMB2,000 ($289 at the current exchange) more from customers. The low increase was interpreted more as a message that prices would not be reduced any more than as a real need to raise the prices the BEV maker had just made smaller. On May 5, Tesla also increased the values for the Model S and the Model X.

It is not clear if these measures will help the company reverse the sales drop it has experienced recently. That probably has more to do with how old the company's lineup looks, especially for Chinese customers. With a wide variety of new BEVs to choose from, people will only pick a Tesla if they are worried about where to charge. Tesla's Supercharging network is an asset, but it will be less crucial when the BEV maker opens some of these stations to other vehicles in an attempt to receive government incentives. Making its chargers more profitable can also be a valid reason.

On top of that, Tesla has a reputation problem in China that it is not trying to fix in the best way. Sudden unintended acceleration episodes keep popping up there, and all the company has done so far is blame the drivers or even sue them when they accuse Tesla of selling them defective vehicles.

The American BEV maker also recently lost for the third time a lawsuit for fraud. The company sold Han Chao a certified pre-owned Model S in May 2019. While Tesla said it had "no major accidents" and "no structural damage," Chao discovered it had to have its C-pillar replaced after a crash. Tesla will have to pay him RMB1,518,800 ($219,781), but the main issue was being convicted for something so serious, especially against a customer.

Paying less for any product is always good news when that does not affect other customers, only the competition in any given industry. In Tesla's case, the price reduction strategy was flawed for loyal customers (who felt cheated), for new customers (who wished to pay even less), for the company (which prevented its own sales with its unpredictable tactics and jeopardized the residual values of its cars), and for its investors. There are more than one tried-and-true ways to do that: creating new derivatives, a new model, promotions, you name it. Tesla supporters should only hope for one thing: that the company learned why legacy carmakers follow these paths.