The Tesla story has had a good run but the cracks are starting to appear.
I’ve been analyzing corporate income statements for over 25 years. And I’ll tell you one thing I’ve learned about price cuts. Price cuts are a dangerous tool to be playing around with. The problem with them is that once you cut prices, it’s extraordinarily hard to ever raise them again. Companies have to be absolutely certain that that the circumstances are dire enough to require a price cut, otherwise you do anything else in your power to avoid them.
Before you cut prices, you try extra advertising. You try giving the customer more for their money. You try special bundle deals. You try some kind of retailer promotion. But you absolutely do not cut prices unless there is no other option. Cutting prices is always the remedy of last resort. It’s cutting off your foot to escape from a bear trap
Tesla has just cut prices twice in a week. Either demand for Tesla’s cars have fallen off a cliff or this company is beyond being incompetently managed. But judging from the recently released sales figures for China and Europe, it looks like the competition is finally starting to take a bite out of Tesla’s market. Sales in China were very disappointing and demand in Europe appears to be imploding.
Tesla managed to eke out a “record” Q3. But it was a Pyrrhic victory considering it was tens of thousands of cars below their production capacity. The Q3 record of vehicles sold was way below true expectations. Not the fake expectations that were revised downward hours before the delivery release. Tesla had to finally show the world that the myth that they are production constrained is no longer true.
Now the Q4 price cuts are about to topple another Tesla myth. The myth that Tesla has any kind of “moat” against the competition. Tesla is struggling to sell cars in an environment where EV sales are growing. Growing for almost everyone else except for Tesla. It turns out that there is no moat. The competition is stealing Tesla car sales. This is why Tesla has idle factory capacity.
Tesla apologists have been vociferous about their belief that EV competition would even help Tesla. That the rising tide of an EV revolution would lift all boats. However, as Car & Driver magazine just wrote in the November issue. There is no EV revolution happening. The EV market is a niche market. And more competition means all companies get a smaller slice of the pie. The competition is here and it’s hurting Tesla.
Tesla’s investors have been hopeful that Tesla could one day grow into profitability. They they could achieve economies of scale that would help them turn a profit. It hasn’t happened yet. Tesla continues to cut prices faster than they can reduce costs. All of their tiny recent profit has been due to government regulatory credits. Free money unrelated to selling cars. In 2020 Tesla has been rock steady at losing over $100 million dollars PER MONTH selling cars.
And with demand falling for Tesla’s cars now combined with price cuts, Tesla is going in reverse. This is the opposite of economies of scale. The road ahead for Tesla just got that much rockier. Tesla’s stock price notwithstanding this company is in a more precarious place than ever.
Before you cut prices, you try extra advertising. You try giving the customer more for their money. You try special bundle deals. You try some kind of retailer promotion. But you absolutely do not cut prices unless there is no other option. Cutting prices is always the remedy of last resort. It’s cutting off your foot to escape from a bear trap
Tesla has just cut prices twice in a week. Either demand for Tesla’s cars have fallen off a cliff or this company is beyond being incompetently managed. But judging from the recently released sales figures for China and Europe, it looks like the competition is finally starting to take a bite out of Tesla’s market. Sales in China were very disappointing and demand in Europe appears to be imploding.
Tesla managed to eke out a “record” Q3. But it was a Pyrrhic victory considering it was tens of thousands of cars below their production capacity. The Q3 record of vehicles sold was way below true expectations. Not the fake expectations that were revised downward hours before the delivery release. Tesla had to finally show the world that the myth that they are production constrained is no longer true.
Now the Q4 price cuts are about to topple another Tesla myth. The myth that Tesla has any kind of “moat” against the competition. Tesla is struggling to sell cars in an environment where EV sales are growing. Growing for almost everyone else except for Tesla. It turns out that there is no moat. The competition is stealing Tesla car sales. This is why Tesla has idle factory capacity.
Tesla apologists have been vociferous about their belief that EV competition would even help Tesla. That the rising tide of an EV revolution would lift all boats. However, as Car & Driver magazine just wrote in the November issue. There is no EV revolution happening. The EV market is a niche market. And more competition means all companies get a smaller slice of the pie. The competition is here and it’s hurting Tesla.
Tesla’s investors have been hopeful that Tesla could one day grow into profitability. They they could achieve economies of scale that would help them turn a profit. It hasn’t happened yet. Tesla continues to cut prices faster than they can reduce costs. All of their tiny recent profit has been due to government regulatory credits. Free money unrelated to selling cars. In 2020 Tesla has been rock steady at losing over $100 million dollars PER MONTH selling cars.
And with demand falling for Tesla’s cars now combined with price cuts, Tesla is going in reverse. This is the opposite of economies of scale. The road ahead for Tesla just got that much rockier. Tesla’s stock price notwithstanding this company is in a more precarious place than ever.
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