Are cheap models a lifesaver? Tesla is looking for a way out in price wars and AI

High beams

2024-04-24 20:11Published on the official account of Beijing Tencent Automobile's "High Beam" column

Tencent Auto "High Beam" Author Lin Keying

On April 23, local time, Tesla released its first-quarter financial report. According to the financial report, Tesla's revenue in the first quarter was 21.301 billion US dollars, down 9% year-on-year, the largest decline since 2012, and net profit was 1.129 billion US dollars, down 55% year-on-year. Tesla explained that the decline in net profit was mainly due to the decrease in the average selling price and delivery volume of vehicles, as well as the increase in operating expenses of R&D projects and the mass production cost of the Cybertruck.

Despite a lower-than-expected first-quarter earnings report, Tesla's stock price rose instead of falling after announcing that it would accelerate the launch of new models, including budget cars. After the call, Tesla's stock price rose more than 13% after hours, temporarily halting the decline.

Since the beginning of this year, Tesla has continued to encounter challenges, sales and revenue performance are unsatisfactory, and the scope of layoffs and cost reduction continues to expand, the latest news is that on April 23, the day of the financial report, many Chinese fresh graduates hired by Tesla this year suffered unilateral termination. Looking at the new energy vehicle industry, the competition is becoming more and more fierce, how will Tesla survive the cold winter?

The price is adjusted twice a month

On April 21, Tesla China announced a price cut across the board. Among them, the price of the Model Y series was reduced by 9,000 yuan, and the rest was reduced by 14,000 yuan.

And less than a month ago, Tesla bucked the trend in the price reduction frenzy of Chinese car companies. In mid-to-late March, Tesla China revealed that it would raise the price of the Model Y model by 5,000 yuan on April 1.

Flexibility to adjust prices based on sales volume and inventory orders has become commonplace for Tesla. Musk doesn't want everyone to feel that the price of the car cannot go up or down, he hopes that Tesla users can get used to adjusting the price according to expectations, but for Chinese consumers, if the price increases, users will not buy a car. Oliver Wyman Managing Partner Junyi Zhang analyzed.

Tesla's first-quarter sales data shows that from January to March this year, Tesla delivered a total of 386,800 vehicles, a year-on-year decrease of 8.5%, the first year-on-year decline since the epidemic, and a decrease of 20.2% from the fourth quarter of last year. According to FactSet, 11 analysts had estimated that Tesla's first-quarter deliveries averaged 457,000 vehicles.

Tesla explained that the decline in production and sales was due to the fact that the Fremont plant in California was still in the early ramp-up stage after the Model 3 upgrade, the Red Sea conflict caused the diversion of shipping, and the shutdown of operations due to the arson attack at the Berlin plant.

But that's not enough to fully explain Tesla's declining sales. The factory's capacity issues mainly affect production rather than sales, and Tesla's production in the first quarter was 433,400 units, 46,600 units more than deliveries. The recent price cuts across the board have further triggered speculation that Tesla's sales have encountered bottlenecks.

Zhang Junyi said that from the perspective of cost performance, Tesla's attractiveness to Chinese consumers is gradually decreasing, and price reduction promotions have become one of Tesla's few choices. In addition, Tesla's price increase in early April is a financial treatment to expand gross and net profit margins, and after the release of the quarterly report, Tesla will have to start thinking about sales again.

In fact, on the eve of the release of the first quarter report of 2023, Tesla in the United States also officially announced the price reduction of many models such as Model 3 and Model Y, with a range of about 4.7%-6%. "That's the kind of market value management and expected change of a mature company. Zhang Junyi concluded.

Tesla's "metamorphosis" under the price war

Since 2014, Tesla has been in China for 10 years, and the number of Chinese car owners has increased from 15 to more than 1.7 million. At the same time, China's new energy vehicles have also achieved rapid development. In the fourth quarter of 2023, BYD's pure electric vehicle sales reached 526,400 units, surpassing Tesla to become the world's largest electric vehicle manufacturer.

Ten years on, Tesla is facing a completely different competitive environment. Since the beginning of this year, the competition among Chinese car companies has become more and more fierce, and it has become a red sea. Cui Dongshu, secretary general of the China Passenger Car Market Information Association, previously wrote that the scale of price reductions for passenger cars in the first quarter of 2024 has exceeded 60% for the whole year of 2023, which is equivalent to the total scale of price reductions in 2022. Among them, the "main force" of price reduction is new energy models such as pure electric and plug-in hybrid.

In the meantime, in addition to the need to meet the common competitive pressure, Tesla has often become the "target" of car companies. At the Xiaomi SU7 press conference, Lei Jun directly benchmarked Tesla many times, saying that Xiaomi wants to build a "dream car" comparable to Porsche and Tesla, and said in an interview after the meeting that the configuration of Xiaomi SU7 is much higher than that of Tesla Model 3.

At that time, the price of the new version of the Tesla Model 3 was 30,000 yuan higher than that of the standard version of the Xiaomi SU7. After this round of price reduction on April 21, the price gap has narrowed to 16,000 yuan.

Musk has never wanted to position Tesla as a car company. On the first-quarter earnings call, in response to analysts' questions about "when do we expect to launch models that are both cheap and easy to use to occupy a more advantageous position in the competition with China's top rival", Musk did not talk about model planning, but once again recounted Tesla's efforts on FSD, and reiterated that Tesla should be regarded as an artificial intelligence company, "We want to do our business well from our own perspective, rather than blindly looking at what others are doing." ”

However, the revenue of the automobile business still accounts for more than 80% of Tesla's total revenue, and the competition of models is unavoidable. In China's highly "involutional" auto market, Tesla needs to build its own customer loyalty if it wants to occupy a certain market share.

But Tesla's increasingly frequent and drastic price changes may be turning it away from that goal. On January 6, 2023, Tesla China announced that it would reduce the Model 3 from 265,900-349,900 to 229,900-329,900, with a maximum reduction of 36,000, and the Model Y from 288,900-397,900 to 259,900-359,900, with a maximum reduction of 48,000. This price cut directly prompted the outbreak of China's new energy vehicle price war in 2023. In August 2023, Tesla launched a time-limited insurance subsidy policy of 8,000 yuan for the existing model of the Model 3 rear-wheel drive version, and directly reduced the price of the Model Y long-range version and high-performance version by 14,000 yuan. After each official price cut, there is no shortage of complaints from car buyers on social media.

Zhang Junyi believes that Tesla's frequent price adjustment model is not conducive to the maintenance of its long-term user base in the Chinese market. "This kind of high-speed, large-scale price reduction, to a certain extent, will hurt a certain number of loyal consumers, so simply using the way of price reduction to attract consumers, the effectiveness will actually be lower and lower. He explained that consumers will expect more price reductions in the future, making the current purchase of new energy vehicles seem to be "trapped".

In response to the question of price reduction, Musk responded that Tesla's price must constantly change to match production with demand, and other automakers often adjust prices significantly through dealer price increases and manufacturer or dealer incentive adjustments, "only a fool would think that the MSRP is the real price."

Zhang Junyi speculated that the Beijing Auto Show is approaching, which is the peak period for various auto brands to adjust prices, and Tesla itself has a high degree of attention, and Tesla's price reduction will further stimulate other car companies to adjust prices.

The day after Tesla China officially announced the price cut, Li Auto adjusted its price system for the first time. Among them, the ideal L7 decreased from 319,800 to 379,800 yuan to 301,800 to 359,800 yuan, the ideal L8 decreased from 339,800 to 399,800 yuan to 321,800 to 379,800 yuan, the ideal L9 decreased from 429,800 to 459,800 yuan to 409,800 yuan, and the MEGA decreased from 559,800 yuan to 529,800 yuan.

In contrast to Tesla, Ideal said that it will provide cashback to owners of the 2024 Ideal L7, Ideal L8, Ideal L9 and Ideal MEGA, and push cashback notifications through the Ideal Auto App.

"In the short term, Tesla can only stimulate sales through price and service positioning, but in the long run, it needs more competitive new models and new business models. Zhang Junyi said.

Are cheap cars the new opportunity?

Tesla's predicament has become more and more apparent: the models on sale are gradually getting old, new models are not being launched for a long time, and the freshest Cybertruck will only be delivered for the first time in November 2023, and the production capacity problem has not yet been fully resolved, with only 125,000 units planned for production this year. In addition, the Cybertruck's variety and form factor make it a niche market. Musk also admitted: "It will be very difficult to get the Cybertruck legal on the road in China." ”

In the past month, the Cybertruck has been in turmoil. In mid-April, Tesla sent a notice to prospective owners of the Cybertruck that the original delivery plan had to be put on hold due to unexpected delays in the preparation of the vehicle. On April 19, local time, according to the National Highway Traffic Safety Administration, Tesla announced the recall of 3,878 2024 electric pickup Cybertrucks because its accelerator pedal may be stuck causing accidental acceleration, increasing the risk of collision. Instead of bringing Tesla out of the doldrums, the Cybertruck put further pressure on it.

Under pressure, on April 15, Musk issued an all-staff email, announcing that Tesla would lay off 10% of its workforce worldwide, "As we prepare for the next phase of the company's growth, it is extremely important to focus on all aspects of the company to reduce costs and increase productivity." Fresh Chinese graduates were subsequently terminated en masse, including technical positions at Tesla's energy storage gigafactory, which is about to go into production.

The new model production plan mentioned in the first quarter report may become an opportunity for Tesla to get out of the cold winter. On April 23, local time, Musk said on the earnings call that Tesla will continue to update its vehicle lineup and accelerate the launch of new models, including cheap cars, and some production plans originally scheduled for the second half of 2025 may be advanced to early 2025 or even the end of 2024. The new model will utilize the next-generation platform and current platform technology, and will be able to use the production line of the current model.

After the news was released, Tesla rose more than 13% in after-hours trading. For Tesla today, it is particularly important to launch new models to revive market expectations, and cheap cars have been a topic of concern for all parties.

As early as 2006, in "Tesla's Secret Ambition", Musk said that he would "use the money he earns to produce more affordable cars". During the earnings call in January this year, Musk also made it clear that the company expects to start producing the next generation of electric vehicles at its Texas factory in the second half of 2025.

The first-quarter earnings report reaffirmed plans for new models, including low-cost models, in response to a previous Reuters report. On April 5, local time, according to Reuters, Tesla has abandoned its long-promised cheap cars and turned to fully develop Robotaxi. Tesla's stock price plunged more than 6% after the report was issued. Although Musk subsequently accused him of "lying", he did not specifically explain the plans for the cheap car, only announcing that the Robotaxi will be released on August 8.

Zhang Junyi pointed out that Tesla's recent price cuts are not limited to China, and on April 20, Tesla in the United States also announced a wave of price cuts, with a reduction of $2,000. He believes that this shows that this price reduction is also a measure to accelerate the shipment of old models to a certain extent, so as to pave the way for the release of subsequent new models.

Tesla said in its earnings report that the new model plan may lead to a lower cost reduction than previously expected, but it can cautiously increase vehicle production in a more efficient way of capital expenditure in uncertain times, which will help make full use of the current expected maximum production capacity, so that production can increase by more than 50% compared to 2023 before investing in new production lines.

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