In January 2023, Forbes reported a significant price reduction by Tesla: “Tesla Slashes Prices Up To 20 Percent, Sending Shockwaves Through EV Industry.” (https://bit.ly/41ZHA7f). Speculation surrounding the reasons included sales not meeting expectations, inflated model pricing surpassing the US clean vehicle tax rebate threshold, the passing of improved supply chain costs to customers.
While the price cuts attracted new customers, existing Tesla owners expressed dissatisfaction, noting accelerated depreciation of their used vehicles beyond typical expectations. Throughout 2023, Tesla’s pricing downtrend continued, with an overall ~30% decrease, significantly affecting current owners. This shift, combined with higher operating repair costs, led car rental giant Hertz to slow their transition towards electric vehicles, resulting in 20,000 cars to be sold in the market, coupled with a $245 million depreciation charge.
Tesla is renowned for abrupt changes to offerings, altering cosmetic features, modifying capabilities like Full Self-Driving, and adjusting monthly subscription pricing. Despite the volatility, these moves fueled Tesla’s growth, making it the most valuable brand in the global automotive sector. It also influenced other major car manufacturers (Ford, GM, Toyota) to reconsider their massive investments in electric vehicles in favor of hybrid engines and other potential disruptive technologies like hydrogen motors.
While such pricing fluctuations might alienate existing customers in other industries, Tesla seems exempt. Two key factors seem to contribute to this resilience: first, Tesla boasts a “cult-like” following, with enthusiasts overlooking issues due to their passion for the brand, like Apple fans. Second, Tesla’s unconventional car model updates, released on a more fragmented schedule (not the usual “annual model”, with specific standard and optional features) and with a variety of selectable features, make it challenging for appraisers and used car dealerships to accurately price vehicles in the used market, partially masking the true impact of new vehicle price drops.
This may not be the case for your business, so it’s a good reminder to evaluate both existing and new customer perception, prior to making significant changes to your pricing strategy.
