Tesla cuts prices again: "It wants to squeeze out the opponent", which is likely to trigger a new round of price wars

Tencent News "High Beam" author Zhang Xiaojun

Every time Tesla announces a price cut, it makes car companies worry. Just when the market thought that the price war was temporarily eased, Tesla once again announced a price cut in China.

It is reported that from August 14, 2023, the starting price of the Model Y long-range version will be adjusted from 313,900 yuan to 299,900 yuan, and the Model Y high-performance version will be adjusted from 363,900 yuan to 349,900 yuan.

"Although the price difference is only 10,000 4, this is a very significant price reduction, (Model Y long-life version) from more than 300,000 to 299,900." Zhang Junyi, managing partner of Oliver Wyman and head of Asia-Pacific Automotive and Industrial Products, believes that the main motivation for Tesla's price reduction is because of fierce competition in the Chinese market, and in the face of strong competitors including BYD, the price reduction is a strategy adopted to maintain its rapid growth rate, market share and competitiveness.

"It's going to squeeze out the competition." He said.

The timing of the price reduction

Every price cut by Tesla will become the focus of the market, and its price reduction is not welcomed by the outside world. Car companies are not welcome, Tesla's price reduction strategy means that they also have to re-evaluate their pricing strategy - do they follow up with price cuts? Does your own cost structure support follow-up? This affects not only the electric vehicle brands that compete directly, but also the fuel vehicle brands that compete indirectly; Many investors are not welcome because price cuts dilute profit margins; More importantly, this has also attracted the attention of relevant departments to try to avoid the possibility of Tesla dumping in China.

As early as the beginning of this year, Tesla's price cut indirectly triggered a round of large-scale price war for Chinese cars. "Tesla has always wanted to cut prices." Zhang Junyi said, "But because it fell at the beginning of this year, its price reduction triggered a wave of price reduction, so the state does not want it to fall; At the same time, because it wants to report financial reports, it cannot reduce the price casually, which will affect its gross profit margin and net profit margin, and investors will have opinions. ”

Therefore, Tesla made a careful choice about the timing of this price cut. It chose to visit China shortly after Musk's visit, while conducting experiments in Hong Kong and then reducing prices in the mainland. Not only that, but now is the time for it to finish its semi-annual report (Tesla released its semi-annual report on July 20).

"The time to reduce prices is very important, if you do it before the half-year report, the price will come down, and the gross profit will be less." A professional in car pricing said. It can be seen that Tesla has repeatedly evaluated and weighed the impact of price cuts on itself.

For Tesla, its advantage is that the scale effect gives it a basis for price reductions. "It's not like some companies are forced to cut prices and overdraft their own profits to reduce prices." According to the pricing strategy experts.

It is worth noting that Tesla's price strategy is not only aimed at China, it is a region, a regional assessment, because in different regions price sensitivity and competition situation are different, some regions are more competitive and do not need to be reduced; And some regional competitors are falling and have to reduce prices. Otherwise, once some companies insist on not reducing prices, it is easy to be swallowed up by competitors for market share. Combined with multiple complex factors, Tesla is continuously and structurally reducing prices.

Many Chinese car companies are in a dilemma

Tesla's continued price cuts have made other car companies anxious.

"Everyone is evaluating." Zhang Junyi said that although Tesla's penetration rate in China is not high, it has a demonstration effect on the price of China's automotive industry because of its industry status. Car companies will pay close attention to Tesla's price and study their own price reduction space, including but not limited to cost accounting, price elasticity, "Will the price drop damage the brand?" "Can price cuts lead to incremental markets?" After all, price reduction is not just a simple price adjustment, but also needs to consider factors such as sales growth and brand image.

Chinese car companies should not follow suit and cut prices. First, Tesla has scale effects and cost structure as support for price reduction; Second, Tesla has established the user's mentality relative to many brands, and the price reduction will not greatly lead to the depreciation of its brand. At the same time, Musk "doesn't want to be a luxury car company at all, he wants to be a company that can disrupt the automotive market, just like Henry Ford did." Zhang Junyi said that as early as the 20th century, Ford transformed the Model T from a luxury car into an affordable car for everyone. Musk is also like this, he wants to be a change-maker, by cutting prices to let more people buy cars, so that energy storage into more homes, and then achieve an energy revolution.

Zhang Junyi said that Musk has changed the industry from two levels: first, he built an electric car with about 1/4 of the cost, and the performance is as good as the supercar of an oil car; Second, as the price continues to change, it can even build cars with zero gross profit, and obtain profits through software, changing the business model.

In his view, for some enterprises with scale effects, price reduction may be a means to obtain the market; For another part of the company, it is not necessary to rely on price reduction to respond, there are other methods, such as adding configuration. At worst, following up on price cuts not only hurts the brand, squeezes profits, but also doesn't bring more sales and market share.

For the question of whether to reduce prices, some car companies are in a dilemma. "Extremely hesitant." Especially for those companies that have mass-produced models in Tesla's market segment - if they follow Tesla to reduce prices, will it drag down the company's profitability? If the price is not reduced, the market share will decline rapidly, and it may eventually die. So some companies insisted on not reducing prices at first, and after a period of time they couldn't stay up, but they still lowered.

According to another consulting partner, price strategy is the combined output of each company's long-term brand positioning, cost structure and short-term sales strategy. Although the same price reduction, the original intention is different - some enterprises have a good cost structure and have room for concessions; Some companies sell at reduced prices in a "dumping" manner. From the perspective of sustainability, it is necessary to avoid vicious competition and excessive competition.

This year's wave of car price reductions, although Tesla has a demonstration role, its root is not Tesla's price cuts. Fang Yinliang, a global managing partner at McKinsey, said one of the root causes is the mismatch between automakers' expanding supply and consumers' real demand. Automobile companies have excessively high sales expectations; However, firstly, the penetration rate of new energy has increased, and secondly, China's total automobile sales have remained at 23 million to 25 million units, which is only a steady growth of about 3-4% per year, so the total amount has not increased significantly. This has led to a mismatch between car companies' expectations and actual consumer demand.

Fang Yinliang believes that intelligence and electrification require a lot of investment, and today's low profits of enterprises are not only low prices, but also their R&D investment, channel investment and capacity investment, so short-term sales are more attractive to various enterprises. Moreover, the price reduction of the entire industry in the first half of the year did not play a positive stimulus to the recovery of consumer confidence, but made consumers hold more of a wait-and-see attitude.

In Zhang Junyi's view, the price reduction turmoil will continue in the second half of this year. "Long-term price wars won't last long, because companies don't have so many resources to fight." But there is still a price war in the short term, half a year or a little longer. But for a long time, the price reduction will not be as drastic. This way the price is reduced, because some companies will be eliminated by the market. ”

From another level, price reduction is also the process of market cleanup and clearance.