Tesla is running a pricing experiment, and we can learn something from it, and apply some components of the experiment in our businesses. Yes, when customers are stressed, you open the pricing engineering textbook to help them, and stay relevant. And how do you do that? You chop your margin because that could be the only strategy especially when there is a brutal competitor named BYD which is on the crosshairs.
BYD, a Chinese EV maker, is throwing frontal and frank attacks on Tesla, and hitting the target really well. “Tesla last year reduced its prices in China twice. BYD increased its prices. We are direct competitors. BYD is so much ahead of Tesla in China “, says Berkshire Hathaway chairman Charlie Munger, a business partner of Warren Buffett. In other words, BYD has lifted the veil of Tesla before Chinese customers, and pricing movement did not move the demand on the curve for Tesla at scale.
Good people, in 2023, Tesla has cut its prices at least 6 times. The Model 3 now will not take you off by up to $40,000, while you get a change of $3,000 on Model Y. Despite what the company will tell you, it is not doing all these cuts at the position of strength. Chinese EV makers are hurting Tesla’s position globally.
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Indeed, if you look deeper, Chinese EV vehicles appear destined to win the EV future because they are extremely great competitors in this space. Of course, governments will make that impossible through subsidies and artificial levers of tax credits in Europe and North America. But anywhere else, that is an open debate.
Yet, what Tesla is doing is working because that is how to survive to compete tomorrow: ‘Tesla’s price cuts are boosting demand, but they’re also taking a toll on profit. The EV maker’s first-quarter earnings were on par with analysts’ expectations, but net income was down 24% year over year as the firm absorbed the impact of plummeting prices, The Wall Street Journal reports. Deliveries were up 36% over the same period. Tesla said it was confident its operating margin “will remain among the highest in the industry” despite that number falling close to 8% in the past year.’
The lesson, obeying Econ 101: deliveries were up 36% but income was down 24% year over year. Score: goalless, keeping investors out of their panic pills until the next quarter. Only dynamic managers will win the future. Tesla has shown agility on this matter.
BYD Continues To Gain on Tesla Globally After Beating It In China
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More like if you cannot score to win, then don’t concede to lose; you will live to fight another day.
A stockholder wants a price increase, and a customer wants a price reduction, who do you listen to? Not so simple to answer.
Business at highest level is much more than what goes on at the marketplace, the Wall Street and its constituents also have a big say.
There is a constant exchange between emotion and logic, anyone you push too much could derail you greatly.