After Tesla's third quarter report, multiple institutions had predicted that in the face of fierce competition in the domestic car market, Tesla would not rule out equity amplification and pricing exploration. And Tesla's recent actions may surprise these institutions.
Tesla China announced on November 14th that it will raise the price of the Model 3/Y rear wheel drive version, with the Model 3 rear wheel drive version increasing by 1500 yuan to 261400 yuan and the Model Y rear wheel drive version increasing by 2500 yuan to 266400 yuan. This is the third time Tesla has raised prices domestically since October 27th.
Tesla has officially attributed this round of intensive price adjustments to "cost issues," but the market seems more willing to believe that Tesla's move is aimed at repairing its severely declining profitability.
At the same time, some industry insiders believe that this move is actually Tesla's pricing strategy. When domestic new energy vehicle companies have successively started to reduce prices, Tesla has taken the opposite approach or prepared for future policy adjustments, "that is, reserve space for future price reductions
Didn't the organization anticipate it?
In just 19 days, Tesla China has completed three price increases for different car models.
On November 14th, Tesla's official website in China updated the starting prices of the Model 3 and Model Y rear wheel drive versions. Among them, the updated model 3 rear wheel drive has increased its price by 1500 yuan, and the adjusted price starts at 261400 yuan; The Model Y rear wheel drive version has increased by 2500 yuan, with an adjusted starting price of 266400 yuan.
Just two weeks ago, on October 27th, the selling price of the Model Y high-performance version was increased by 14000 yuan; Subsequently, on November 9th, the starting prices of the Model 3 Long Range Renewal and Model Y Long Range models increased by 1500 yuan and 2500 yuan respectively.
After three price adjustments, all models of the Model 3/Y series have experienced a comprehensive price increase. This round of price increases is basically over, "a Tesla China insider told reporters. However, he is not sure if Tesla models will continue to increase in price in China for a long time in the future.
It should be mentioned that after Tesla released its third quarter report, many institutions have given expectations for further price reductions. Everbright Securities believes that in the face of intensified competition in the industry, Tesla is expected to continue to face the risk of equity expansion and downward pricing. At the same time, Kaiyuan Securities also believes that Tesla will maintain its sales priority strategy, and there is still a possibility of price reduction in the future.
After all, Tesla's delivery performance in the third quarter was not as expected. Official data shows that in the first, second, and third quarters of this year, Tesla delivered 422900, 466100, and 435100 vehicles worldwide, respectively. The third quarter saw a decrease of 6.61% compared to the second quarter. As of the end of September 2023, Tesla has delivered a total of 1.324 million new cars worldwide.
Tesla CEO Musk has stated that the company will maintain its delivery target of 1.8 million vehicles in 2023. Based on this calculation, Tesla's annual sales target completion rate is only 73.56%. Based on current data, Tesla needs to deliver at least 476000 new cars in the global market in the fourth quarter of this year to successfully meet its annual sales target.
According to normal logic, Tesla should initiate price reductions in the domestic market to effectively boost sales. More importantly, as we enter the last quarter of this year, domestic new energy vehicle companies have launched price reduction models in order to achieve their sales targets.
On the 1st of this month, BYD, which had hit sales of 3 million vehicles, suddenly released a big move and will launch a promotion from November 1st to November 30th, offering discounts on five models. The participating models are all popular BYD models, with a maximum profit margin of 2000 yuan to 20000 yuan. BYD achieved its annual sales target of nearly 80% in the first 10 months.
On October 16th, Jikron announced that from now on until December 31st, its models will launch limited time car purchase rights. After stacking, its main model, the Krypton 001, can enjoy a limited time benefit of up to 80000 yuan. In addition, various price reduction activities have been launched, including Zhiji, Zero Run, and Wenjie.
In the market's view, as various car companies hit sales targets and seize the market at the end of the year, it is bound to open up more intense price competition. The China Association of Automobile Manufacturers has previously stated that the fourth quarter is a crucial period for achieving the annual target, and promotional policies will continue, indicating a further inward trend in the car market.
To 'save' profitability?
Against this backdrop, what is Tesla's intention to do in the opposite direction domestically?
Tesla officials attribute the recent price increase to 'cost issues'. However, in reality, Tesla's raw material costs per car decreased to $37500 in the third quarter, a decrease of approximately $2000 compared to the previous quarter. And Tesla's production line upgrade in the third quarter will further reduce Tesla's single car costs.
A person close to Tesla also mentioned that Tesla's current production capacity is relatively tight and demand is strong. The Shanghai super factory continues to supply multiple countries in Asia Pacific and Europe, and it is not ruled out that the delivery cycle may continue to be extended. According to Tesla China's official website, the pick-up cycle for Model Y has been extended to 2-8 weeks, while the pick-up cycle for the updated Model 3 is 2-9 weeks.
But in fact, Tesla's factory delivery in China has been declining month by month in recent months. The latest data released by the China Association of Automobile Manufacturers shows that in October this year, Tesla's Shanghai Super Factory delivered a total of 72100 new cars, a decrease of 2.6% compared to the previous month. In earlier August, this figure was 84200 vehicles.
The market is more willing to believe that this move is Tesla's "rescue" of its severely declining profitability.
Tesla's third quarter financial report shows that it achieved revenue of $23.35 billion, a year-on-year increase of 9%, lower than analysts' expected $24.06 billion. The net profit was $1.853 billion, a year-on-year decrease of 44%, while the market expected it to be $2.231 billion. The gross profit margin was 17.9%, compared to 25.1% in the same period last year and 18.2% in the previous quarter. This is the fourth consecutive quarter on quarter decline in Tesla's gross profit margin.
An anonymous analyst told reporters that Tesla's price increase for the Model 3 and Model Y models is more aimed at improving its low gross profit margin. At present, Tesla's gross profit margin is too low and its stock price fluctuates greatly. We need to use this to increase its gross profit margin and boost investor confidence
In his view, Tesla's gross profit margin for the third quarter of 2023 was lower than expected, mainly due to a decline in ASP, factory production line adjustments leading to production stoppages, new factory construction, and the continued climb of 4680 batteries.
Or related to policy factors
In addition to the aforementioned factors affecting profitability, an industry analyst told reporters that Tesla's recent continuous increase in selling prices in the Chinese market may also be related to policy factors. One factor that needs to be mentioned is that the domestic vehicle purchase tax will be adjusted next year.
In June of this year, multiple ministries jointly issued a notice on the extension and optimization of tax reduction and exemption policies for new energy vehicle purchases, which clearly stated that for new energy vehicles purchased between January 1, 2024 and December 31, 2025, the tax exemption amount shall not exceed 30000 yuan per vehicle. Half of the vehicle purchase tax will be levied on new energy vehicles purchased between January 1, 2026 and December 31, 2027, with a tax reduction of no more than 15000 yuan per new energy passenger vehicle.
Tesla's official website has clearly shown that currently purchasing Model Y High Performance Edition, Model S, and Model X can also enjoy full exemption from purchase tax. Starting from next year, on the basis of enjoying a purchase tax reduction of 30000 yuan, car owners of the above-mentioned models will be required to pay taxes ranging from 20 to 44000 yuan.
With policy adjustments and market maturity, these preferential policies may gradually decrease or be cancelled. Tesla's moderate increase in selling prices may be in response to these policy changes, "he said.
In its view, Tesla's increase in domestic prices at this time is actually "storing water" and reserving space for future price reductions. Once potential customers need to pay taxes in the future, Tesla can take advantage of the situation and initiate price reductions, so as not to cause potential customers to lose orders due to tax payments, while also not significantly reducing the company's profitability
In other words, Tesla is raising prices at this time, reducing its dependence on government subsidies while ensuring sustainable profitability. In the industry's view, this fixed price strategy has more long-term significance. After all, Tesla has provided guidance to the market through frequent price increases and reductions in the past.