Tesla price cuts could end up as a price war

Update March 28 – Tesla Price Cuts

Tesla price cuts – Some analysts claimed that Tesla sweeping price reductions were a sign of weak demand. However, new data approaching the end of the first quarter shows how the move has actually boosted sales.

Sales are up in Europe however with a slight drop off in the UK; down 11.55% (298 units) SMMT against a 18.2% UK EV increase. This maybe due to the imminent opening of the new German Gigafactory and the extra publicity in Europe

“EV price cuts are not a fad, but a trend,”

Adam Jonas (Morgan Stanley )

Jonas said. He went on to describe them as a “deflationary trend;” citing factors including lowered costs on batteries and lithium, as well as improved manufacturing efficiency.

Tesla’s move toward cheaper cars is not a brand new development; and it in fact has been a part of Musk’s strategy for the automaker since at least 2006; — when he penned the company’s first Master Plan. (see timeline below)

January 2023

Tesla price cuts – According to Reuters, Tesla has globally slashed prices of their electric cars by as much as 20%; which is seen as an aggressive discount and challenging for rivals.

Company boss Elon Musk said that;

“global interest rate rises had changed the outlook for the industry and could require price cuts”;

Elon Musk, Tesla

analysts said the new move should work to stimulate demand; they could also spark a price war with European and Chinese rivals; Volkswagen only recently raised the price of its entry-level ID 3 model, putting it roughly on par with Tesla’s Model 3. 

Multi-billionaire Elon Musk

December 2022

Once the world’s richest man Elon Musk has sold another 22 million Tesla shares worth $3.58 billion in electric carmaker Tesla ^[1]

These are the headlines read around the world at the end of December 22, Tesla recently has been one of the world’s worst-performing stocks among major carmakers and technology companies this year, and investors are worried that Elon Musk will divert his attention to Twitter and not Tesla,

“he is Mr Tesla, Tesla is Elon Musk”^[2]

said Dan Ives from investment firm Wedbush Securities.

Been Here Before? 

Recent headlines for the Tesla car centre around the comings and goings of the former Chairman, Elon Musk; however, the remarkable rise of this Tech company, whilst supercharged by Musk, still has a solid history of innovation an an individual approach to conducting business; quick at getting products to the market but also no stranger to criticism or challenging authority,

Creative, egotistic, or just a great entrepreneurism? Are Investors and customers falling out of love with Tesla, or is it just another phase?

Business Methodology

Tesla has always had a unique approach to business strategy from its early origins. In 2003 electric vehicles were expensive to manufacture.

Tesla decided that the strategy would be to produce high price, low-volume vehicles such as sports cars; using the profits to bring down the cost of batteries which in turn would lead to cheaper and a higher volume of cars.

The strategy has worked; each of the five cars produced by Tesla has progressively become cheaper to buy.

Tesla does not rely on dealerships to sell the vehicles; the company website and a network of compay owned stores sell the cars directly.

There are over 400 stores in more than 35 countries, typically in retail districts, shopping malls and other high-traffic areas.

Tesla does not spend money on advertising campaigns and it also has a high degree of vertical integration; a system of supplying its integrated components in comparison to the ” just in time” method used by other manufacturers;

in 2016, Goldman Sachs estimated that Tesla’s manufactured 80% of its batteries, motors and software products in house.

Tesla Technology 

Tesla was the first carmaker to use small cylindrical lithium-ion batteries just like those used in everyday consumer electronics; The company designed the batteries to be cheaper and lighter than a standard cell mainly by removing the intumescent chemical.

Tesla used Electric motors that had a a 3-phase 4 pole A/C induction motor with a copper rotor; by the way the inspiration for the Tesla logo, Model 3 and Model Y have more efficient permanent magnetic motors.

The autopilot is an advanced driver assistance system the system requires active driver supervision at all times; the software and sensors work together harmoniously to protect and inform the driver.

Like many of the software systems designed by Tesla, the software is updated regularly over the air.

An upgrade for the system; FSD is a Full Self Driving offers you autonomous driving, where laws and conditions are allowed.

In 2016 the Tesla Glass Technology group produced the glass roofs for the Tesla Model 3. It also produces the glass used in Tesla’s solar roof shingles.

Tesla a Brief Timeline 

1997- Rocket eBook. Electrical engineers and fellow entrepreneurs Martin Eberhard and Marc Tarpenning formed the company NuvoMedia; to develop and launch one of the first e-book readers called the Rocket eBook.

2000- $187 million. The project’s success resulted in the sale of NuvoMedia to Gemstar TV Guide International for $187 million.^[3]

Early 2000- Tzero. Eberhard, interested in sports cars and concerned about fossil fuel effects on global warming; became involved financially and with technical support with AC Propulsion and a prototype electric vehicle called the Tzero. (t₀ a mathematical symbol for the beginning of time or the starting point of a system) ^[5]

Originally the Tzero had acid batteries; Eberhard worked with AC Propulsion to put Lithium-ion cells into the Tzero^[4]; with this successful conversion, Eberhard attempted to convince ACP to commercialise the sports car that had a base price of $222,000; however, their interests lay elsewhere in developing the Scion xB, a high-volume family car.

2003-Tesla Motors.

Eberhard collaborated once again with Marc Tarpenning and founded Tesla Motors; named after Nikola Tesla, best known for developing the A/C (alternating electrical current).

The guiding principles were to be firstly a technology company, produce an electric car without compromise; and use the `game-changing ‘lithium-ion batteries to appeal to proprietary car enthusiasts by outperforming the combustion engines.

2004 -Series A Funding. Acquiring initial venture capital funding of $7.5m, including $6.5m (rising to over $30m) from ex-PayPal cofounder Elon Musk. Eberhard was made CEO, and Musk was made the Chairman.

2006 -Tesla Roadster.

In 2006, the team unveiled the Tesla Roadster. Tesla had achieved something that no other company ever had; they had produced an entirely electric car with practical specifications that would satisfy potential customers’ needs.^[6]

The fully electric Roadster prototype had achieved an unprecedented range of 245 miles on a single charge; additional tests showed that the sports car could accelerate from 0 to 60MPH in less than 4 seconds and reach a top speed of 125mph. More importantly, the carbon fibre roadster produced no tailpipe emissions.

The efficiency ratings that Tesla conducted showed this was the equivalent of a petrol mileage of 135 miles per gallon.

The electric motor was powered by lithium-ion battery cells, the same cells that are used in laptop computer batteries; and they could be recharged from a standard electric socket.

The first of these $100,000 cars were delivered to customers in 2008.^[7]

2009-Tesla Founders. Both Eberhard and Tarpenning left the company in 2008, and in 2009 after a tetchy lawsuit, Eberhard, Tarpenning, Musk and two initial employees, Ian Wright and J.B Straubel, were allowed to be known as the original co-founders.

2009-More Energy. after skirting with bankruptcy in 2009, Tesla was able to sell a 10% share to Mercedes-Benz for $50 million; and also, more significantly; it was successful in competing for American Governments Department of Energy loans of $465 million in total, 

The low-interest loan programme gave Tesla the working capital needed to open a manufacturing facility in Fremont, CA and focus on producing the first commercially viable $50,000 fully electric car.

Also, in 2009, the company registered overall corporate profit for the first time in its history; by 2013, Tesla had repaid the whole loan, including $26 million worth of interest paid back to the US taxpayer ^[8]

2010-2015 IPO, Model S and Model X.

In 2010, Tesla became a public company with an initial public offering (IPO) on the NASDAQ, the first American company to do so since the Ford Motor Company in 1956, ^[9] raising over $226 million.

In 2012 Tesla discontinued the Roadster, and the company launched its second car, the Model S, a luxury saloon with a full charge range of 300 miles. It won several automotive awards in 2012 and 2013; it became the first electric car to top the monthly sales rankings of any country. Model S was also the bestselling electric car worldwide for the year 2015.

2012 also opened its first charging stations called Superchargers; the original six were in California, and as of December 2022, Tesla owns or operates 40,432 supercharges worldwide.^[10]

Gigafactory

2014 Tesla announced the construction of its Nevada Gigafactory (Gigafactory 1); a purpose-built facility to manufacture batteries for all its products.

Additional technical milestones achieved by Tesla during this period were the Tesla Autopilot, a suite of driver assistance systems, energy storage with the Tesla Powerwall and Tesla Powerpack

More importantly 2014 saw the launch of the third car, the Luxury SUV Model X complete with Gull Wing doors, at the time there were 25,000 pre orders^[11]and eventually went on to sell over 100,000 units by 2018.

2016 -2018 Model 3.

Tesla acquired the company SolarCity to expand into Solar power generation and was now a manufacturer of electric vehicles, battery energy storage and solar power generation. The second giggafactury was opened in Buffalo,NY, this is to produce photoviltic (PV) cells.

The company changed its name to Tesla Incorporated (Tesla Inc).

Model 3 saloon was announced as the fourth vehicle and the company’s cheapest car to date; it was a play for the mass market. The launch was highly anticipated, with over 325,000 pre-orders.^[12]

However, the optimism was short-lived as the over-enthusiastic Musk predicted that the firm would produce over 100,000 Model 3 units in 2017 to take advantage of the US’s $7,500 tax credit per vehicle; production only reached 20,000; the problem was a bottleneck in the production of batteries at gigafactory 1.

As usual, money was thrown at the problem, although the initial rollout was plagued by delays of production problems which put increasing pressure on the company at the time; by the end of 2018, the problems were overcome. Model 3 was the world’s best-selling plug-in electric car in that year.^[15]

SEC Lawsuit

Again, the over-enthusiastic CEO announced on Twitter that he was considering taking Tesla back into private ownership and had finance in place to do so; however, it never materialised and gave rise to much controversy in various lawsuits, including fraud charges ^[13] from the SEC (Securities and Exchange Commission) 

This action was settled without any admission from Tesla or Musk. As a result, both were fined, and Musk was forced to step down as Tesla chairman; although he was allowed to continue as CEO.

This is still an issue today as 2018 investors are chasing to re-coupe alleged losses caused by Musk’s tweet.^[14]

“A Split -second decision”

NBC-News

Global Expansion

In 2019 Tesla began delivering its fifth model, the Model Y crossover, to spearhead the global expansion. Tesla’s success in China led to the opening of a gigafactory in Shanghai, remarkably built in less than six months. Additional factories were scheduled to open in Berlin and another in the United States in Austin, Texas.

In January 2020, Tesla reached another record-breaking position by being the highest-valued American automaker In history; passing market values of BMW, Daimler, and Volkswagen combined. Later that year reaching a market value of $206 billion, surpassing Toyota to be the world’s most valuable automotive manufacturer.^[16] Reaching a milestone goal of manufacturing half a million cars in 2020.

After a temporary falling out with Californian officials over COVID-19 restrictions in 2021, Tesla moved its headquarters from California to the gigafactory in Austin, TX.

Despite the moving of headquarters, Tesla continued to develop in the San Francisco Bay area by creating additional space at the Palo Alto facility and started producing a new battery factory in Lathrop, CA.

Another landmark achievement by Tesla is to achieve $1 trillion worth of capitalisation; Only the 6th company in United States history to do so.^[17]

Rising Stock

This rise in the stock price and capitalisation of the company was helped by the fact that Hertz had placed an order of row over 100,000 Tesla vehicles for its rental fleet.

In March 2022, the Berlin car factory was commissioned. Berlin is the largest Manufacturing plant in Europe for electric vehicles.

First deliveries of the vehicles were overseen personally by Musk, who claimed that Tesla had made more than three million cars, with the Giga Shanghai alone making its millionth.^[18]

All this being said, Tesla may have had the wealth in investment, but still, by comparison, Toyota delivered over 10 million vehicles in 2021 alone, highlighting just how small of a manufacturer Tesla is. 

Money to burn

Musk fanned the flames on the fire by stating that Tesla’s Berlin and Texas factories were “money furnaces” losing “billions of dollars” because of supply change and production issues.

Investors have been reassessing the fast-growing company in the face of inflation and macroeconomic concerns; Tesla stock was down 25% in 2022.

The central Chinese government blocked plans to double the size of the Giga Shanghai production facility. This was to accommodate 2 million cars a year after officials expressed concern with Elon musk’s activities with SpaceX; particularly the association with Starlink.

Are Tesla’s Problems and Elon Musk are intertwined*

Jeff Link writes in Wired that the Tesla shares had already fallen in April 2022 since Musk bid for Twitter; Tesla and its CEO have alienated many of its customers. Its limited designs on high prices make Tesla vulnerable to traditional automakers who have rushed into the EV market with options that Tesla will struggle to match.

Before 2020 Tesla we’re up against the leading manufacturers’ “B teams”, according to Matthias Schmidt, an independent analyst who tracks electric car sales in Europe. “That is changing. The opposition has started rolling out some of their ace squad players.”

Cyber Truck

2023 Tesla will release its long-awaited cyber truck, an angular SUV first announced in 2019. It would be the first launch since 2020. An updated version of the two-seater sports car is still years away; the current models were once seen as cutting edge, but now they are looking a little bit long in the tooth;

The majority of car makers refresh the looks of their vehicles every three to five years, and Tesla Model S is now 10 years old; according to Mark Barrott, an automotive analyst for Plante Moran.

While Tesla’s designs may still turn the odd head or two, the high prices mean they are now competing with other established luxury brands.

These competitors now produce quality electric vehicles now with the same performance levels and ranges that Tesla has until recently monopolised the market.

DC Fast Chargers

Tesla’s primary asset at the moment is a competitive advantage from its supercharging network. There are 40,000 DC fast chargers located on major thoroughfares around the world; with a high-speed charge giving up to 322 miles range in 15 minutes, it is accepted that the network contributes to about 12% of Tesla sales globally^[18].

According to Schmidt, Tesla is already in decline in Europe, with the Volkswagens MEB platform (Q4, ID3,4,5) out selling model Y and Model 3 by 20%. 

The proposed legislation by the European countries to reduce carbon emissions by 2030 (UK) and 2035(EU) is likely to bring more competition to European (and Chinese) car makers into the market.

There is also a growing sense that since taking over Twitter, Musk is once again making the challenging situation for Tesla even worse.

Over the past year, Musk has used Twitter to lash out at critics,  indignantly  challenge members of the government, place himself in the centre of a free speech debate; and according to Daniel Binns, global chief of Interbrand:

“Musk’s core is rapidly moving away from him, and people are just starting to say, as regards Tesla,  I don’t want to be associated with them.”

A customers view

An anecdote of this Is the once-loyal customer Alan Saldich Who lives in Idaho, who bought into the Tesla project in 2011 by ordering a Model S before Tesla had even manufactured a complete car.

When his car was delivered, was number 2,799 one of the first 3,000 ever made.

On Christmas morning, 2012, the car would not start; he emailed Musk directly seeking a remedy. Musk responded in 24 minutes, apologising and trying to fix the problem remotely; unsuccessful, he wished Saldich a happy Christmas.

On New Year’s Day, Joost de Vries, then vice president of worldwide service at Tesla list showed up at Saldich’s s house with a trailer; The car was hauled to the Tesla plant in Fremont, CA, to be repaired.

 Saldich and his family even got a factory tour, but since then, he’s cooled on the company. In 2019 he sold the Model S and now drives a Mini Electric.

He is irritated, in particular, he says, by Musk’s verbal attacks on government programmes and regulations and particularly as Tesla benefited from the State and Federal EV  grants. he was quoted as saying, “I probably wouldn’t buy another Tesla” he says “A, because there are so many alternatives and B, I don’t like [Musk) anymore.”

Extracts from an article by Jeff Link @ Wired https://twitter.com/WIRED/status/1617553258507112450

Tesla FAQ`s