Why Tesla is offering huge discounts on its cars

Tesla is offering up to R120 000 off its electric cars, but why?

Car prices don’t come down. Especially in the luxury market. Amid the most potent global inflation numbers this century, the world’s most valuable car company has done the unthinkable and initiated massive discounting on its models.

But why? Tesla has benefitted from compelling demand dynamics over the last decade. The issue appears to be outrageous expectations meeting the reality of physically building cars.

Although Tesla’s global sales were 40% greater last year than 2021, the expectations were for 1.4m deliveries. And it managed ‘only’ 1.31m. For most car companies, a 40% increase in global sales would be a generationally defining moment. But Elon Musk’s car company is geared differently.

How significant are the Tesla discounts, and how do they influence the broader luxury car market? Depending on your exact specification of Tesla Model 3 or Model Y, you’ll pay between 6- and 20% less now than was the case late last year.

Tesla starting a luxury segment price war?

With rivals from Europe finally delivering alternatives to the Tesla range, price positioning in the luxury electric vehicle market is very competitive,

Discounting luxury vehicles is unheard of, as it depreciates the residual values of those customers who already own cars. But Tesla customers are deeply loyal and retain their vehicles for a longer ownership cycle. That negates some of the inherent discounting risks.

Tesla spokespeople say lower production price inflation has created the margin for a discount. But that would appear nonsensical. Without detailing the exact bill of materials or components, which have become less expensive to source.

Why is Tesla really discounting its industry-leading electric vehicles by such generous percentages? Especially when they are unquestionably popular and in demand? It is a terrific irony that Tesla’s margins are so strong, it allows for generous discounting. This pressures legacy luxury car brands like Audi, BMW, and Mercedes-Benz, as they attempt to stabilize price positioning around their own electric vehicles.

The best explanation is that Musk’s car company must achieve its stated volume targets, which was not the case late last year. To ensure that happens, Elon Musk is willing to sacrifice some margin in the short-term (and risk antagonizing owners), by discounting Teslas, to move more metal in 2023.

(Image: Tesla)