Tesla sparks EV price war with insane discounts in China, US. Why is Elon Musk desperate?

Tesla has been stoking a price war in two of its biggest markets, China and the US, for some time now. In China, the largest market for EVs, Tesla has been offering discounts for the better part of 2023.

In August alone, the EV maker has slashed prices significantly by several thousands of dollars twice over. Reports suggest that another price cut may be on the cards in select Chinese cities.

In the US, Tesla recently launched two new variants of their most popular EVs—Model S and Model X—slashing the base price by up to $10,000, though it also significantly watered down their distance range. The move was aimed at cutting costs and getting more people to buy Tesla’s EVs.

Sliding demand, piling stocks
For 2023, Elon Musk announced that Tesla will be selling nearly two million vehicles, worldwide. In Q1 of this year, Tesla delivered 4,22,875 vehicles, whereas in Q2, Tesla delivered 4,66,140 EVs. By all estimates, Tesla should hit the numbers that Elon Musk had promised his investors and stakeholders.

However, Tesla seems to have overplayed their hand.

The EV maker made more cars in both Q1 and Q2 than it could sell. Tesla ended up having nearly as many Model S and X in stock as they could actually get off the lot. They put together a total of 19,437 units for the first quarter of 2023, but a similar amount of Models 3 and Y were also produced and just left sitting unsold.

This is starting to pose a growing challenge for Tesla.

During the first quarter of 2022, they managed to sell 5,000 more electric vehicles than they produced. However, in the first quarter of 2023, they ended up making 18,000 more electric vehicles than they could manage to sell. These numbers are in addition to the 56,000 electric vehicles that were still waiting for buyers when 2022 ended.

But, despite such inventory left unsold, Tesla needs to keep its factory going at full swing so as not to undermine investor confidence. It can slow down production nominally only since any big cuts throw investors and stakeholders in panic.

Falling stock
In just the last year, Tesla’s market value has seen some of the wildest fluctuations. In September of last year, Tesla’s stock was valued at $309 a share. Cut to December of 2022, it had plummeted to $110 a share. While the value of Tesla’s stock has grown over the months, to date in August it stands at $225.60.

While Musk himself has claimed that he felt Tesla’s stock was overpriced by 10 per cent, the slide in Tesla’s stock has been disconcerting for investors and stakeholders.

Given Musk’s shenanigans with X, formerly Twitter, and his contentious relations with the press, as also with the SEC, Musk often needs to contend with unhappy investors.

Other EV makers are catching up fast
Tesla and Musk practically single-handedly brought in the EV revolution, and it has been very expensive for them. Moreover, Tesla has had some really unique features and innovations that have set their EVs apart, even from regular cars. That is the reason Tesla EVs carry a premium. The features and performance of Tesla cars have justified the markup.

However, other car companies, especially legacy car makers, are catching up fast. Porsche Taycann, for example, has emerged as a really popular EV in North America, and although it is nowhere near toppling any of Tesla’s EVs in terms of sales, it has taken a considerable bite from Tesla’s pie, especially for those who were looking for a car that would be a speed demon. Ford, Mercedes and BMW, all have come up with their EVs that are quite compelling alternatives to the Teslas.

Tesla, a status symbol in China
On the other hand, in China, Tesla continues to be an aspirational brand, especially when you consider that the Chinese have several credible options from Geely and BYD that are priced aggressively to the Teslas. While Tesla has led BYD in BEV sales globally, BYD continues to outsell Tesla in China. Even globally, BYD is inching closer to Tesla.

Figure this: In 2018, if there were 100 EVs sold in the US, Tesla would sell about 75-80. Today, with so many players around and with so many options to choose from, that number is down to 55-60, as per data published by Barron’s, an American weekly newspaper published by Dow Jones & Company.

Delays in new product launches
The latest car that Tesla launched was the Model Y, which was unveiled in 2019; deliveries started in early 2020. Although it was a massive hit, it wasn’t exactly new. It was based on the Model 3, so much so, that it shared about 75 per cent of components with it.

Although Tesla has showcased a number of other cars in between, there is no clarity on when deliveries will start. Be it for the press or for customers, car manufacturers, including EVs, need to update their portfolio rapidly. If there are no new models to launch, car makers often launch facelifts. While Tesla adds a ton of new features with each generation, it does very little to give the car a new design.

First, people get bored with older designs, very quickly, especially if you don’t have a timeless design. This becomes even more problematic if you have a very limited portfolio.

Second, with new designs, car makers often introduce completely new tech, which then gets talked about in the press and among car enthusiasts. Tesla’s approach of silently adding and removing features doesn’t get the same attention.

Tesla seems desperate, either to maintain sales figures and revenue they have been hitting for the last couple of years or to grow their operating profit.

Be that as it may, there is no denying the fact that when Tesla finally launches the Cybertruck and the Roadster, it will once again be in a position where the demand for its vehicle will far exceed its production capacity.