Tesla's Newest Pricing Strategy Is Working As Intended, Just Have a Little Patience

Tesla Model 3 Drifting 7 photos
Photo: AriAndCars on YouTube
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Tesla decided to make its cars as expensive as possible and laid off some of its staff. This is not happening because the American EV maker is in financial trouble. It’s just a very good way of making sure there’s nothing more being added to an already huge backlog. The good news is that it’s working. It’ll also offer a great opportunity to apply some discounts when the time is right. Here’s why you shouldn’t be upset or disappointed.
Talking about what Elon Musk is doing has turned into an international frenzy. Multiple media outlets are watching this man’s every move only because they want to attract the public without offering any good or relevant information in exchange. This must stop. Elon Musk might lead two very important companies and several others as a side hustle, but on social media, he’s nothing else than a private person. And he should be treated as such.

Too much attention might turn into leverage that could eventually be used unwisely or, as it happens already, it could keep random citizens away from properly understanding what’s going on with the very things that impact their lives.

Let’s be honest with each other for a second. How many car company CEOs are this well-known globally? Do you really think people in Europe have heard of Mary Barra? Is anyone from the U.S. seriously considering remembering Herbert Diess as the CEO of Volkswagen Group? Most people don’t even know who Jim Farley is, even though Ford’s F-series is the most popular truck in America.

We should all focus on what truly matters for consumers and our common future. That’s one of the reasons why we ought to look beyond the unannounced price hikes for EVs that are part of the S, 3, X, and Y lineup. Right now, we should strive to understand that Tesla’s decision to make its cars more expensive than anyone ever expected is nothing else but a very good strategy. Even though it looks bad for the short term, the whole ordeal will only help the company survive these uncertain times, and it will lay the foundation for a bright future.

Leave the dinosaurs alone! (Terms and Conditions most likely apply)

Arguing that internal combustion cars are expensive to run (for the time being, at least) and harmful to the environment since their creation might be the best way to convince someone to switch to an EV. Add the promise of quick acceleration and build simplicity, and you’re on your way to victory. But looking at what’s happening around us… It’s getting pretty hard to get someone in a brand-new Tesla.

At the time of writing, the car that started life as a promising EV for the masses is now priced at $46,990 before potential savings and other incentives. The Model 3 RWD (base spec) is not cheap anymore. And don’t you dare look at the very cool Model X SUV that’s now $6,000 more expensive than before. It starts from $120,990!

At this point, you might think that Tesla’s pulling the rug from under its own feet. You’d be extremely wrong.

Fresh data from J.D. Power shows that the average transaction price for a vehicle has almost doubled in the last 15 years. If in 2007, the median price paid for a new car, van, or truck was $26,560. In 2022 it rose to $44,744! That’s because a health crisis led to governments adding too much money to the existing supply (more precisely, we’re talking about money printing). People wanted to spend the money received for free, and investors cashed in the all-time highs seen on stock markets almost everywhere.

All this sparked an unexpected rise in demand that took businesses by surprise. Nobody was prepared (other than Toyota for a couple of months) to satisfy their customers promptly, especially as the world was just returning to business as usual. Supply chains were still being affected by certain restrictions, but for at least a month, it looked like the crisis could end. Then a war began in Europe, and every hope of having a fast-tracked transition to normality vanished.

The green transition that U.S. and Europe agreed upon also impacted the investments in fossil fuels. We’re paying a lot more for gas because key players from the Organization of the Petroleum Exporting Countries (OPEC) decided they sent enough to other nations. An unstable geopolitical scenario is not helping very much as well. Oil output is still lagging, despite companies raking in record profits.

Because of this, commercial entities relying on transport are seeing operational costs going only up, and they are forced to act. In the end, the consumer pays – a lot more.

That’s mostly why we’re here today. Now everything is expensive, and prices will keep their uptrend for at least half a year more.

You and I would have done the same

Now take this scenario and apply it to a car company that’s fighting to remain the number in a very conservative environment. What would you do as a CEO, especially when you see that prices for raw materials needed in batteries are increasing as well? You’d most likely agree with a price hike. Tesla did exactly that. In the last 14 months, it increased the cost of its vehicles four times! Furthermore, it removed useful things like the mobile connector from the free accessories list and made it an option.

But here’s where the genius part comes in: it discourages buyers from getting in line, and it increases the profit margins thanks to customers that are willing to go beyond their initial budget. It’s great!

Let’s say that you have $65,990 ready for a new Model Y Long Range. You’d be right to consider it a bit steep in value, but you still pull the trigger. Well, get ready! Your new all-electric crossover will be delivered next year. Tesla currently estimates it could take anywhere from seven to ten months to build your vehicle.

You could also consider buying a cheaper Tesla Model 3 competitor, but a Polestar 2 or a Hyundai Ioniq 5 wouldn’t come with the advantage of having easy access to the Supercharger network. Electrify America is there for other EV drivers, but it’s not yet as good at this as Tesla.

To avoid more customer dissatisfaction, Tesla just increased the price and is going on this route until the global macroeconomic landscape stabilizes. It might backfire for a couple of months, but it won’t do any harm in the long term. Some customers will be priced out of considering a base-spec Model 3, but this surely is just temporary.

Simply clever

That’s why this is an exceptional idea. This strategy allows Tesla to prepare for discounts. Dropping the price of an EV in two or three years - right as we’re trying to adapt to the idea that internal combustion engine vehicles are doomed - will do wonders for the American auto brand. It will be able to crank up the production and the sales again. Granted, this will happen only when we’re getting back on track.

Another brilliant idea Elon Musk’s Tesla had was to share the Supercharger network with other EV drivers. For now, the non-Tesla Supercharger Pilot is only happening in Europe because governments support the creation of new chargers for EVs and the automaker wants a slice of the pie. It'll soon come to the U.S. as well. This might be an uncomfortable thought for those that bought an all-electric car from the American automaker and expected to have this major advantage for themselves, but it pushes Tesla yet again in another key domain: it’s becoming an energy supplier!

For investors, this is nothing but good news. Paying to use the charging network brings in new customers, establishes a strong cash flow, and might make others give up on their Hyundais, Volkswagens, Porsches, Chevys, or Volvos to get something from Tesla.

Also, don’t forget the other products that are shaping this car company into an energy giant: the Solar Roof, the Solar Panels, the Powerwall, and the Megapack - the latter being intended for other businesses. On top of all this, add insurance that’s highly customizable for every single Tesla owner! Even though it can be a tiny bit intrusive with its data collection, the rates are very competitive. You get the picture. It’s something other manufacturers can only dream of. Just imagine if BMW, for example, knew its customers as well as Tesla does!

At the end of the day, Tesla might make use of its customers to test unfinished software and make them pay for this opportunity. It may ask them to agree to in-car surveillance so the company’s products can be improved, and it might go along with unscrupulous work practices to keep the production ramped up, but we must remember that you can’t make everyone happy all the time. Plus, rules aren’t the same everywhere on Earth. Tesla’s also turning into a global giant. It must adapt, and the company proved it can do it with no second thoughts.

Keep in mind that we’re talking about a corporation that’s looking to remain profitable no matter what the state of the economy is or what customers and workers might demand, and that shouldn’t surprise anyone. It’s cool that we get to drive EVs that are fast and not as complicated as the internal combustion engine ones, but at the same time, we must ready ourselves for a new era where the customer is just another user of a certain product. The person that’s paying for this privilege shouldn’t expect any special treatment for choosing a car (trucks will be added later) that doesn’t come with an exhaust.

The good news is that you don’t have to be a customer if you don’t agree with their practices. It’s enough to be a very happy investor.
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About the author: Florin Amariei
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Car shows on TV and his father's Fiat Tempra may have been Florin's early influences, but nowadays he favors different things, like the power of an F-150 Raptor. He'll never be able to ignore the shape of a Ferrari though, especially a yellow one.
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