Elon Musk Slashes Prices, Signaling the Start of Tesla’s Death Spiral
Originally published on: CCN Markets
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July 17, 2019
Cost of Tesla full self-driving option increasing by ~$1000 on August 16
— Elon Musk (@elonmusk) July 16, 2019
Another Price Cut and Discontinued Models
Tesla’s best-selling car is the Model 3 because it was intended to be tagged at an “affordable” price of a mere $35,000. In reality, the true price is about $40,000.
But Elon Musk and Tesla reportedly cut the price of the Model 3 by $1,000 to $38,990. This is on top of a stealth price cut related to the halving of the federal tax incentive that kicked in on July 1.
That’s not all. The company is discontinuing the Model S and Model X standard range versions, which are the lowest-priced cars for those product lines, and simultaneously raising the prices of the remaining product lines.
That means the base version of the Model S will leap from $75,000 to $80,000 and the Model X will jump to $85,000 from $81,000.
Corporate Nonsense from Tesla ‘Explains’ the Moves
The official statement out of Tesla reads like standard corporate nonsense:
“In order to make purchasing our vehicles even simpler, we are standardizing our global vehicle lineup and streamlining the number of trim packages offered for Model S, Model X and Model 3. We are also adjusting our pricing in order to continue to improve affordability for customers. Like other car companies, we periodically adjust pricing and available options.”
You have to love the addition of “like other car companies.” Tesla is nothing like any other car company. Other car companies don’t have their workers slaving in sweatshop-like conditions as they rush to meet delivery quotas. Nor do other car companies have problems with their product spontaneously combusting.
So what is really going on with these price adjustments? We have to read between the lines and understand how and why corporations alter product lines and pricing.
What Tesla’s Price Moves Really Mean
Every company wants to try to cut expenses whenever it can. Eliminating the no-frills standard range versions of the Model S and Model X means all of the effort that goes into constructing those vehicles continues. But now it includes the add-ons of the upgraded versions of those vehicles and the higher pricing that goes along with them.
It’s a bit like an ice cream shop no longer selling a three-scoop serving without any toppings and will only sell three scoops with toppings. The store can charge with little additional effort, and by simultaneously raising prices on it, the profit margin is enhanced.
Meanwhile, it discounts its low-end product, and discounting is never a good thing because it indicates a lack of demand.
Elon Musk Is Desperate
Thus, Elon Musk is trying to stoke demand in the low-end models to demonstrate that Tesla cars are selling “to the average Joe.” That likely means Tesla is losing money on those cars.
Meanwhile, Elon Musk is trying to skew the rest of the line to the luxury buyer because average Joe can’t afford an $80,000 car, much less one that is $85,000.
This is a bad sign for Tesla and Elon Musk. “Every other car company” doesn’t monkey around with its product lines like this until they’ve been established for many years and it is part of an overall long-term strategy.
This is just Elon Musk trying to keep the lights on at Tesla and feels like a desperate move.