As we all know, frequent price adjustments have become a brand feature of Tesla. In the past few years, Tesla has made countless price cuts on two hands. However, unlike the previous "price cuts" theme, Tesla has recently made unprecedented price increases. In less than a month, it has officially announced three consecutive price increases.
On November 14, Tesla’s official Weibo announced that the price of the Model 3 rear-wheel drive version has increased by 1,500 yuan, with the adjusted price starting at 261,400 yuan; the price of the Model Y rear-wheel drive version has increased by 2,500 yuan, with the adjusted price starting at 266,400 yuan.
Image source: Tesla China
Counting this time, this is Tesla’s third recent price increase. On November 9, Tesla announced on its official Weibo that the price of the Model 3/Y long-range version has been officially increased. Among them, the price of the Model 3 long-range version has increased by 1,500 yuan, and the adjusted price starts at 297,400 yuan; the price of the Model Y long-range version has increased by 2,500 yuan, and the adjusted price starts at 302,400 yuan.
As early as October 27, Tesla also announced that the price of the domestic Model Y high-performance version would be increased by 14,000 yuan, with the adjusted price starting at 363,900 yuan.
Now that the "price war" is in full swing, Tesla has changed its past style and begun to increase prices one after another, just to "force orders" and increase gross profit margins. The problem is that with the continuous launch of new models in the same price range, Tesla's product competitiveness is also declining. The recent unsatisfactory sales performance is the best proof.
Of course, there are also market views that Tesla's recent price increases are for better price reductions. However, as market competition becomes more and more fierce, when and how much should be reduced will become Tesla's next problems.
Is price increase “forced order”?
Tesla’s price increase this time has made countless consumers and even industry insiders say they “can’t understand it.” Regarding this price increase, Tesla's official customer service staff said that the price increase is due to rising costs, and the configuration of the vehicle has not changed. It is normal for vehicle prices to rise and fall. If costs fall, then the price may come down.
It is understood that the new Tesla Model 3 started pre-sales on September 1, and domestic delivery started on October 26; the new Model Y completed the evolutionary upgrade of all models on October 1, with new multi-color ambient lights added to the interior, and updated technical fabric materials were used on the dashboard trim and front door trim. The appearance has been updated with a 19-inch Gemini wheel rim design.
If only viewed from the perspective of increased product configurations, Tesla's official response is indeed "reasonable", but the official statements of car companies are often difficult to convince consumers. Consumers are more concerned about what car companies do, and only real actions are the standard answer.
It is worth noting that while announcing a small price increase, Tesla also launched promotions for referral orders and test drives.
Specifically, before December 31 (inclusive), car buyers who order Model Y/S/X through referrals and pick up the car within the validity period can enjoy a 1,750 yuan final payment deduction and a 90-day EAP (Enhanced Assisted Driving System) trial benefit; as a referrer, car owners can receive a 7,000 point reward. Before December 1 (inclusive), car owners can also receive "superimposed benefits". Each time they invite a friend to the store to complete a test drive, they can win 500 points as a reward, up to 3 times.
Therefore, compared with the view that supply exceeds demand, many industry insiders prefer the view of "forced orders", that is, through a small price increase to encourage consumers who are waiting to place orders. This is also true. Many netizens also said that they have received messages from Tesla sales staff in recent days, using the keyword "will continue to rise" to urge consumers who are still hesitating to order a car while the price is still low.
Of course, there are also different views in the market. For example, Cui Dongshu, secretary-general of the National Passenger Car Market Information Association, believes that Tesla’s price increase for Model Y and Model 3 is a price adjustment plan due to increased profit pressure.
Judging from the financial report, Tesla has been affected by successive price cuts in the past year, and its gross profit margin has continued to decline. Tesla's gross profit margin in the third quarter of this year was 17.9%, the lowest level in four years. For reference, Tesla's gross profit margin was 25.1% during the same period last year. Since entering 2023, Tesla's gross profit margin has continued to decline, from 19.3% in the first quarter to 17.9% today.
Figure: Tesla’s main financial data for the third quarter of 2023
The price increase will undoubtedly alleviate the decline in gross profit margin, but it will also put certain pressure on Tesla to complete its full-year sales target of 1.8 million vehicles. However, judging from the news, Tesla's "willingness" to continue raising prices is still relatively strong.
Perhaps in order to further force orders, or perhaps in order to accelerate the improvement of gross profit margin, some media recently learned from industry insiders close to Tesla that after three consecutive price increases, Tesla may increase the price in the Chinese market again in the near future.
Competitiveness "weaker"
At a time when many "friends" are constantly cutting prices and launching new products, Tesla is doing the opposite, raising prices one after another while still not launching new models. This will inevitably reduce the competitiveness of its existing models, leading to a decline in sales.
Pulling the time back to just half a year ago, Tesla's two models still had strong market competitiveness.
Judging from sales data, in the first half of this year, BYD ranked first with sales of 1.191 million vehicles, and Tesla ranked second with sales of 889,000 vehicles. Although the overall sales volume cannot keep up with BYD, Tesla still maintains the lead in terms of single model sales. In the first half of the year, Tesla Model Y (580,000 units) and Model 3 (279,000 units) ranked in the top two, and BYD Song ranked third (260,000 units).
However, Tesla's outstanding performance in the first half of the year did not continue in the second half. Data released by the Passenger Car Market Information Joint Conference showed that Tesla sold a total of 74,073 domestically produced models, a year-on-year decrease of 10.9% and a month-on-month decrease of 12%. Wholesale sales in October were 72,115 vehicles, a decrease of 2.6% from 74,073 vehicles in September.
Among them, the "main" model Model Y sold 41,000 units in September, but sales in October were only 26,000 units, a sharp drop of 15,000 units. As for Model 3, due to the replacement, the sales volume does not have much reference.
Faced with the continued decline in sales in the second half of the year, Tesla's official statement is that it is due to the shutdown of the factory upgrade plan. Although this level has more or less influence, it is not the "core" reason. The real reason for Tesla's sales decline is the intensification of market competition.
Entering the second half of the year, many new domestic car companies have successively released their own new products, many of which are benchmarking Tesla Model Y and Model 3, and have shown strong competitiveness in terms of appearance, configuration, interior, battery life and other aspects, as well as the most important price range.
In the field of SUVs, Zhiji Automobile released its brand-new product Zhiji LS6 one month ago, with lidar, all-aluminum chassis, Continental brakes, double-glazed glass, NAPPA leather, 20-speaker 7.1.4 panoramic sound... They are all standard, but the price starts at only 214,900 yuan. The excellent product strength demonstrated by Zhiji LS6 also poses a certain threat to Tesla Model Y.
In the car field, Huawei recently released its first smart electric car, the Zhijie S7, built in cooperation with Chery Automobile. It is equipped with the HarmonyOS4 Hongmeng system and the ADS2.0 high-end intelligent driving system. It only takes 3.3 seconds to accelerate from 100 kilometers to 100 kilometers, the braking distance from 100 kilometers is only 33.5 meters, and the CLTC comprehensive cruising range exceeds 800km... It is better than the Tesla Model 3 in many aspects.
The most important thing is that the pre-sale price of Zhijie S7 starts from 258,000 yuan, which directly matches the Tesla Model 3. According to Huawei Auto BU Chairman Yu Chengdong, just two days after the release of Smart World S7, the order volume has exceeded 10,000 units.
In fact, not only these two cars, but also the competitiveness of a number of new products such as the Xpeng G6, Wenjie M7, Feifan R7, etc., have shown extremely strong competitiveness on the basis that Tesla's two models have not been replaced or have undergone minor facelifts. Especially as Tesla continues to increase prices, the "benchmark" models of new domestic forces have greater advantages.
Whether it is the declining sales data or the continuous expansion of the advantages of benchmark models, it is clear that Tesla is no longer popular.
Or is there a “price reduction” coming soon?
Musk has publicly stated: "We are willing to lower the price of electric vehicles again during turbulent times. Although this will affect the company's gross profit margin, we are willing to sacrifice gross profit margin in exchange for sales growth."
Based on this, many industry analysts believe that Tesla's successive price increases are likely to "reserve water" and reserve space for future price cuts.
It is understood that in June this year, the "Announcement on Continuing and Optimizing the Vehicle Purchase Tax Reduction and Reduction Policy for New Energy Vehicles" jointly issued by multiple ministries and commissions clearly stated that for new energy vehicles with a purchase date between January 1, 2024 and December 31, 2025, the tax exemption shall not exceed 30,000 yuan per vehicle. The vehicle purchase tax will be halved for new energy vehicles purchased between January 1, 2026 and December 31, 2027. The tax reduction for each new energy passenger vehicle shall not exceed 15,000 yuan.
Tesla’s official website has clearly stated that if you currently purchase Model Y high-performance version, Model S and Model X, you can also enjoy full purchase tax exemption. Starting next year, on the basis that the above-mentioned models enjoy a purchase tax exemption of 30,000 yuan, car owners will need to pay a tax ranging from approximately 2,000 to 44,000 yuan.
In other words, Tesla's current price increase is a precautionary choice. Once customers need to wait and see to pay taxes next year, Tesla can start reducing prices accordingly. That is, it will not let wait-and-see customers give up ordering cars because of paying taxes, and at the same time, it will not have a big impact on its profitability.
In addition to the impact at the policy level, in the short term, Tesla is likely to make a "disguised" price cut at the end of the year.
In June of this year, Tesla launched a limited-time incentive event for existing Model 3 vehicles. If you purchase a rear-wheel-drive version of Model 3 that month and complete the delivery, you can enjoy an 8,000 yuan insurance subsidy and preferential interest rate loan program.
By August, Tesla China's official website once again launched an 8,000 yuan insurance subsidy campaign, and the "earn referral rewards" policy for all Tesla models continues. If a car buyer orders a Model 3/Y through a friend's recommendation and picks up the car, they can win a 3,500 yuan referral reward that can be used to offset the final payment of the vehicle.
As mentioned earlier, Tesla is still far away from its annual target of 1.8 million vehicles, and if it wants to achieve this goal, it must increase sales in the fourth quarter. The method of "forcing orders" by raising prices may be effective for some consumers, but it will also make other potential customers more cautious and cannot be a core means to achieve the total sales target.
In China, the end of each year is the peak season for car sales. In order to sprint for performance and clear the backlog of vehicles accumulated over the year, major car companies will choose to carry out various preferential activities or lottery activities during this period.
If Tesla first raises prices to force orders, and then carries out "disguised" price cuts at the end of the year through referrals, insurance subsidies, etc., the combined effect of the two methods may be able to better achieve the annual sales target.
But in general, as competition among domestic car companies further intensifies and various new products come to the fore, the competitiveness of Tesla's existing models will continue to decrease without "big moves."
So whether to continue to reduce prices for the sake of market size, or to increase prices for gross profit margins to stabilize investor confidence, Tesla is currently in a dilemma and cannot find a "standard answer."