Tesla’s Price Cuts Strategy is Starting to Backfire

Written by Reananda Hidayat Permono Completed Master of Science - MS, Petroleum Geology from Curtin University, Perth, Australia.

Elon Musk has been cutting the prices of Tesla vehicles over the past few months, but its latest price cuts don’t have the same effect.

Morgan Stanley experts say this strategy was short-lived, especially in a demanding battleground like China.

At first, the cuts helped Tesla to gain demand amid increasing electric vehicle competition.

Unfortunately, further price reductions haven’t given the same positive reaction.

Adam Jonas, Morgan Stanley auto analyst, said Tesla’s price cuts started a round of industry price reductions.

However, unlike the previous cuts, this round hasn’t triggered a strong demand response as people wait for further cuts.

Moreover, Morgan Stanley estimates the Chinese auto market gives about 30 to 40% of Tesla’s profitability.

BYD, its biggest competitor in China, also introduced product discounts. Interestingly, not all customers were happy.

Customers demanded refunds for the price difference from when they purchased Tesla cars just months earlier for a higher cost.

At the beginning of this year, Tesla made identical moves in the US on the Model 3 and Model Y with price cuts of up to 20%.

Elon Musk made a move that followed Tesla’s tough 2022 since it fell short of Wall Street expectations.

This move forced others to do the same thing, as Ford reduced its Mustang Mach-E electric SUV prices.

But some automakers, including GM Volkswagen, decided not to engage in the price war.