Offering discounts of over 1,300 dollars on United States model 3 cars, and even up to 20% discounts on others, shocks buyers due to Tesla’s plummeting margins. The price reductions on the electric cars have caused profit margins to fall over 10%.
This is not the first time that Tesla discounts its vehicles. It is rather at least the fourth time in the past several months that these discounts have been pursued.
Why is Tesla Discounting Prices on Its Vehicles?
The company continues these drastic price reductions because it is attempting to gain more attention from consumers. Turning its attention back to the U.S market, the company updated the prices in January. Since January we have seen the prices drop even more.
The company believes that aggressively cutting vehicle prices is a successful approach to the traditional automakers’ tactic of offering incentives to clear inventory when facing economic hardship and rising competition. Musk argues that the state of world’s current economy is “turbulent”. Additionally Musk believes that there is extreme rising competition when it comes to electric vehicles. What Musk refers to as a “turbulent” economy and rising competition are what give him reason behind the company’s questionable marketing decisions.
The Future of Tesla
Tesla’s profit margins have fallen from 29.1% to 18.2%. However, Elon Musk continues to ignore these hits arguing that the company cannot control the state of the automobile economy. “If macroeconomic conditions are stable, prices will remain stable. If macroeconomic condition are not stable, we would have to lower prices,” Musk states. In the future, Musk may cut prices further stating that higher interest rates make it harder for people to afford new cars.
Critics argue that Tesla needs to begin working their marketing in terms of a long-term period, rather than short-term solutions. One of these critics includes Marketing Week columnist Mark Ritson who explained that “the company needs to embrace marketing if it is to survive the oncoming wave of contenders to its throne in the Electric Vehicle market”, in which the market is currently very competitive. The price is not Tesla’s only current competitive advantage, Tesla also offers the most advanced energy storage systems. So why doesn’t Tesla turn to advertisements rather than price cuts?
Tesla Advertisements
Ritson suggests that Tesla starts advertising and starts thinking long-term stating that, “The next few months are crucial ones for Tesla. It needs to start advertising. It needs to stop the destructive cycle of discounting before things become problematic,”. Tesla released its first ad in May, and is now starting a new marketing journey. Musk has officially embraced this new step in marketing, which has potential to make drastic positive changes in the company’s profits.
Critics are still shocked that Musk has taken this new step, while others conspire what he may do next. Some believe the company will make an iconic and memorable commercial, similar to apple’s historic advertisement of 1984. While others believe that Musk would never put that much value into an advertisement.
As Musk and the Tesla Company embraces this new technique, we have yet to see how advertisements will impact that profits and competition of the Electric Vehicle.
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