For Tesla, The Bloom Is Off The Rose

Republished By Plato

Followers: 0

Tesla store Somerset — Tesla CEO Elon Musk is looking to move some metal, offering a new incentive, the seventh this year.

While Tesla CEO Elon Musk has long belittled longstanding automakers, he’s not above stealing their sales techniques when sales of his electric vehicles begin to slow.

Tesla launched a new initiative allowing buyers to earn additional incentives through recommendations from current customers on a worldwide scale, a tactic long employed by conventional automakers to increase sales.

This is in sharp contrast to the Elon Musk of 2016. At that time, in a letter to employees, he wrote that, “There can never — and I mean never — be a discount on a new car coming out of the factory.”

The latest discount

For customers in the United States who buy Model 3 or Model Y, the latest incentive, which Tesla has termed “Refer and Earn” on its websites, is comparable to around $500 in cash back along with three months of the Full Self-Driving, the company’s suite of semi-autonomous driving systems. In China, Tesla buyers receive a ¥3,500 (or $483.69) cash rebate if they’re referred by an existing Tesla owner.

The “Refer and Earn” referral rebate program is also being offered in Germany, France, Canada, Mexico, Hong Kong and Singapore, according to the company’s regional websites.

Competing aggressively in China

BYD Han new EV 2022 — China’s BYD, above, has been outselling Tesla in China, where it was once the top seller of EVs.

Tesla, which aggressively reduced prices since late last year, beginning in China, has delayed price cuts on new orders while increasing discounts on cars its already manufactured. The company’s offer of the rebate in China, the world’s largest EV market, comes a day after 16 companies, including Chinese EV makers BYD, Geely, Chery, Nio, Li Auto and Xpeng as well as Tesla, signed an agreement prepared by the China Association of Automobile Manufacturers to avoid “abnormal pricing.”

At the same time, Tesla initiated layoffs at its two battery pack production lines in Shanghai, where fewer than 1,000 are employed, according to Reuters. Tesla’s Shanghai Gigafactory, the company’s largest, employs some 20,000 workers.

But Musk’s Chinese market moves are proving successful, as the company broke a record in the second quarter, selling 247,217 Chinese-made vehicles, according to information released earlier this week. The total was the largest ever produced by the Shanghai facility since its opening in 2020.

More traditional automaker practices

If Tesla’s discounting meant to pump production and layoffs aimed at increasing profitability sounds like conventional automotive strategy, that’s because it is. And, to add to the company’s creeping conventionality, Tesla CEO Elon Musk stated the company will advertise for the first time in its history during the company’s shareholder meeting in May.

“We’ll try out a little advertising and see how it goes,” he said at the time.

A flood of Tesla discounting

Tesla Model3_16 — Tesla Model Y is the company’s most popular model.

But Friday’s announcement is merely the latest discount from Tesla’s bloviating CEO, who first cut prices in October 2022, slashing Model 3 and Model Y base prices in China by 9%.

It ended a series of three price increases that had occurred during the prior 12 months. It was followed late last year by a ¥6,000 discount, or about $840, if Chinese buyers bought a new Tesla by years-end.

It was followed by a similar U.S. incentive, with Tesla buyers receiving a $7,500 in incentives if they take delivery of a new Tesla Model 3 sedan and Model Y SUV by the end of the year. Tesla then sweetened its offer by giving buyers of any Tesla delivered in the final three days of 2022 three months of the Full Self-Driving option for free.

Then came Jan. 2, when the company reduced the price of Model S, Model X and Model 3 vehicles in the U.S. by $2,000 to partially absorb the reduction of the federal EV tax credit that dropped from $7,500 to $3,750 on Jan. 1. And it continues, with Tesla instituting six price cuts and two increases since the beginning of the year before its latest incentive.

“We expect that our product pricing will continue to evolve, upwards or downwards, depending on a number of factors,” the company said in a letter to shareholders.

Certainly the discounting has hurt Tesla’s bottom line, which shrunk its profit margin to 19.3% in first quarter, which analysts had expected to come in at 22.4%. That’s still among the top in the industry.

“We continue to believe that our operating margin will remain the highest among volume OEMs,” the company said in the letter.

Of course that depends on how much conventional marketing costs will continue to erode Tesla’s margins.