Electric Cars

Tesla moves its pricing pawns while positioning for the big electric play

Published by
Bridie Schmidt

Tesla posted its first profit of over $US1 billion on Monday (US time), up tenfold from 12 months ago and beating forecasts even amid a global semiconductor shortage, and without a boost in regulatory credits to prop up the balance sheet.

It has gotten there with a fair amount of sweat and tears by all accounts, but its recent decision to deploy different pricing strategies in different markets are just preliminary moves while it waits to play its main card: FSD.

The record results saw CEO and co-founder Elon Musk declare an “inflection point”, who said it is clear now that electric cars are the only way forward for the transition to clean zero-emissions transport.

In just three years Tesla could be reporting profits greater than that of GM and Ford combined, Giles Parkinson reports, bearing the fruits of being an innovative first-mover, rather than a lumbering dinosaur trying to change its spots.

But its record profit has not been achieved without chewing a lot of glass, as Musk puts it.

Aside from the “agony” of manufacturing ramps, putting in long late hours to negotiate with chip suppliers and rewrite software, the differing strategies Tesla is developing in various markets also signals its awareness of the need to stay agile.

As Reuters notes, in the US Tesla has raised prices of its Model 3 and Model Y up to a dozen times this year alone, even though neither are now eligible for federal tax credits.

What was originally intended as the sub-$US30,000 EV then became the $US35,000 as Tesla stripped the Standard range from the market.

Today, the base level Standard Range Plus Model 3 starts at $US39,990, sitting it atop the US-made Chevrolet Bolt ($US36,500) perhaps making the Californian EV a more desirable, premium buy in consumers’ minds, but also helping to boost smaller average profits per vehicle.

Meanwhile, Electrek reports that a plan to close retail stores and move its showrooms to more affordable locations in the US is now being put into action, albeit in a somewhat watered down manner after pushback from staff concerned about losing their jobs.

According to sources, Tesla is closing its high-rent locations in shopping centres but will employ more staff remotely to assist with online orders, Electrek reports.

In contrast to the US, in Tesla’s next largest market, China, it is actively pursuing reducing manufacturing costs, and in early 2020 lowered the price of the Model 3 in order to make it eligible for EV subsidies.

“Teslas are on average 3x the cost of a typical EV made in China so they have to be priced less than the U.S. to compete,” Loup Ventures’ Gene Munster said according to Reuters. “Prices of Teslas in China will be below (the) rest of the world for the next decade.”

Another market where Tesla is shuffling its pricing options is Japan.

In April 2021, Tesla cut the price of the Model 3 by a massive 24% in a bid to crack Japanese drivers loyal to domestic EV brands Nissan and Mitsubishi. The rise of a new generation of drivers more au fait with buying online rather than being given the “white glove” treatment by dealers saw its sales jump 1300% after the price cut.

Australia also finally got its own price cut in the form of a sub-$A60,000 Model 3 in early July, a move that will also help to drag the market towards transition. With EV rebates in Australia’s two largest states, Victoria and NSW, now on the table, even this tiny market will have a role to play.

The local price drop should also mean that Tesla can introduce the Model Y at a more reasonable price, and signals that an early 2020 comment by Musk that the Model 3 price at the time ($73,900) “seemed high” has perhaps been moved on.

But in the bigger picture, these are all just small pawns being moved around the chess board as the EV maker readies for its big play: FSD subscriptions.

Musk has made it clear he believes that in the long term, Full Self Driving will become vastly more valuable and although the company is taking longer to get there than Musk had at first hoped, Tesla last month finally launched FSD Subscriptions in the US.

By 2022, Musk believes that FSD will finally play a larger role in a healthy balance sheet.

“Last month, and we expect it to build slowly, but then gather a lot of momentum over time. Obviously, we need to have the full self-driving …. widely available for it really to take off at high rates, and we’ve made a lot of progress there,” he said on Monday’s earnings call.

“I think FSD subscription will be a significant factor, probably next year.”

Recent Posts

Diesel vs electric across the Nullarbor: Which is the lowest cost in fuel?

The fuel costs for comparable SUVs crossing the Nullarbor clearly favour the electric SUV over…

March 29, 2024

Australia must wean itself from monster utes – and weakening of vehicle emissions rules won’t help one bit

The amended rules reflect domestic and international trends that, taken together, increase the risk Australia,…

March 29, 2024

Mini to launch two new variants of Cooper electric, with lower prices

A new model of the iconic Mini Cooper hatchback is announced, set to arrive locally…

March 28, 2024

Used Tesla Model 3 stock nearly at an all-time high

Used Tesla Model 3 stock across Australia rises as more buyers make the switch to…

March 28, 2024

RIP Volvo diesel cars: Last XC90 diesel rolls off production line

The last diesel-fuelled Volvo has rolled off the production line. Diesel cars accounted for most…

March 28, 2024

Genesis unveils electric SUV concept with swivel seats and no B-pillars

Luxury vehicle brand owned by Hyundai unveils two new concept vehicles, a first full-size electric…

March 28, 2024