Editor’s letter: Was Tesla right to cut electric car prices?
The Tesla Model 3 Long Range had its price cut by £6500, to £50,990
Tesla cut up to £8000 off its models with immediate effect last month, sending waves across the industry
Few companies divide popular opinion in the automotive industry like Tesla, and its recent move to cut prices is its latest disruptive (or is that destructive?) act that has polarised opinion.
The company cut up to £8000 off the price of its models with immediate effect last month, generating headlines that made it all the way to the News at Ten. When was the last time a story about car pricing did that?A board-level industry executive told me recently that they would “never” cut list prices as it directly hits immediate revenues and forecasts before going on to have an even more serious and long-term impact on residual values.
Similar pricing reductions should be found instead through retail offers, if you need to take such action, said the executive, but either solution should be avoided if possible to avoid the notion that you will cheapen the brand.
Yet, as ever, ‘teflon’ Tesla seems to have got away with it – with customers, the markets and reputationally.
Of course, there are angry customers who took delivery just before the price cuts (who won’t be getting any money back, the company has made clear), including some in China who protested outside the company’s headquarters in Shanghai. Yet stories like this aren’t as common as you’d think, and they’re dying down. The disgruntlement has not become a movement that leads to a U-turn.
The markets? Tesla’s share price has risen 65% in the past month. Berenberg is the latest to upgrade its forecast of Tesla from ‘hold’ to ‘buy’, calling concerns over the pricing changes “misguided”.
As for the reputation, Elon Musk says Tesla’s order bank has never been stronger, which tells you all you need to know. Lower prices mean more customers can now afford one.
Where Tesla leads, some follow, some do the opposite, yet all have their say.
Ford has followed, cutting the list price of the Mustang Mach-E. “We are not going to cede ground to anyone,” Ford's chief customer officer Marin Gjaja told the Financial Times.
The Volkswagen Group will not be following. CEO Oliver Blume told the Frankfurter Allgemeine Sonntagszeitung that the firm would not get involved in a “price war” with Tesla, and instead “had trust in the strength of our products and brands”.
Ever a voice of reason, Kia UK boss Paul Philpott ruled out price cuts, highlighting the damage it can do to relationships with private and fleet customers, and of course residual values. He added: “We will watch what happens in the market, but there are actions we would take before we look to reduce prices, from controlling supply, offering finance support or looking at tactical offerings, all of which would be designed to protect existing owners.”
If there is such a thing as a general sentiment about Tesla, it’s that the move has not been a bad thing for the company, but that does not in turn necessarily make it a good thing. What it wasn’t was a surprise: this is Tesla, and it’s part of everyday business to do things differently, however extreme and unconventional. Its propensity to disrupt continues to know no bounds.