They do everything backwards and their approaches seem to make no sense. Elon Musk’s company already blew the auto industry with its break-in, and now it’s giving it another twist by executing a different script. With a huge profit margin, it goes against the tide with a pricing policy that travels in the opposite direction to that of other brands, which has them misplaced.
If companies like BMW raised the price of their sedans up to three times last year, Tesla has lowered them at least twice in just four months this 2023. Indeed, it had to respond to angry customers who bought a vehicle with prices highest days before receiving discounts on its price. Since unveiling their most popular product, the Model 3 in 2017, they’ve done nothing but take off and soar like the rockets of their other company, SpaceX, but it looks like the ones about to explode will be others.
The first Tesla Model 3, the workhorse of the brand, began to be delivered for sale in Spain during 2019, with a price in its basic finish of 59,100 euros. Today it is possible to buy the same car, in an improved version, for 39,990 euros. The spectacular drop in price is evident, almost a third of its premiere. This week’s drop was 6,000 euros, which added to the one received in January this year, is taking the brand to a status never seen before. Never, in any other manufacturer, had a similar situation occurred, indeed.
Since the pandemic began, and with it the shortage of chips and raw materials, traditional brands have changed their paradigm. They forgot about the sales figures and focused completely on getting more profit from every unit sold. No more offers, discounts, zero miles, and they ended up making more money than ever by selling fewer cars. Californians have gone in the exact opposite direction: They’re dropping prices to dream levels for their clientele, they’re selling far more units and they’re making tons of money, but in a different way.
The ploy seems to be to cash in less for each car sold, but place many more and flood the market with their products. In the first quarter of 2023, 422,875 cars rolled out of dealerships, 36% more than in the same period last year. Its revenue skyrocketed to nearly $20,000 million, up nearly 20%, while its earnings fell 26%. In presenting these figures, Elon Musk made clear his intentions: to prioritize sales figures at the cost of reducing his profit margin, and the finality took the breath away from many managers of other brands.
A shiver. This is what many auto executives’ bodies went through from head to toe when they understood Musk’s footsteps. He doesn’t want to sell cars, but to build an ecosystem through which to distribute products and services. The line he was hearing was “we could sell cars for no profit, and we’ll make money off the software.” This had been suspected for years, and now it’s starting to make sense, because the actual arrival is being seen.
You have to understand that a Tesla is not so much a car, but a technology platform; it looks more like an iPhone than a vehicle. Apple sells its phones, but at the same time puts a shop in the pockets of its customers. With an iPhone you buy applications, games, music, multimedia content, series or even pay at the supermarket. Also, those in the bloc have just become fully involved in banking services; He already had customers and now he’s going to sell them more stuff. Well, the same thing will happen with a Tesla. The benefits, the money, will not come with the delivery of the keys, but with subscriptions, updates, energy top-ups that could end up lighting up the house, insurance, financing, etc.
Teslas are controversial cars, because while they’ve gotten a lot better since they started being sold, they’re far from perfect. Their parts often fit poorly, when newly released they make noises typical of old cars, they are painted poorly or their aftermarket service leaves a lot to be desired. However, the clientele seems to ignore these details because their experience is very satisfying, it makes up for them. A Tesla is an ambitious vehicle, as were German sports cars, which are gradually losing that appeal despite their undeniable quality. It happens that traditional brands are miles behind in two issues where Tesla is far ahead: the energy density of its batteries and energy management based on unique software.
The ‘software’, the gateway to money
Musk has the development of this delicate field in his hands and has never entrusted it to external companies; That’s where he thinks the money will come from. A Model 3 can cost twenty thousand euros less than when it was presented, but if we want to install the so-called improved autopilot, we will have to shell out 3,800 euros. The so-called Total Autonomous Driving Capacity costs twice as much, 7,500 euros; In the United States it goes further and the price of these two options doubles, or 15,000 euros for the extra of autonomous driving.
BMW tries it with its subscription-heated seats, or Mercedes with other perks already shipped in its sedans, but nobody has anything like that. Hence the concern of the competition, which needs to make a leap in technology like never before, worth seeing how Tesla escapes them like a missile. In its calculations this year it is close to two million cars, and its Model Y is already the best-selling car in Europe since the beginning of 2023. From January 1 to April, it has placed 71,683 units, an increase of 173% compared to the previous year same period last year.
The striking detail is that the second in the standings is the Dacia Sandero, an access vehicle that you can take home for 13,040 euros. Everyone else is in the queue and executives of all brands with raised eyebrows and wide eyes…and fearing further price drops. Meanwhile, the customers smile.