If Elon Musk bothered to attend any of my corporate strategy workshops, he would have known that cutting prices is not a sustainable competitive advantage in business. In fact, it’s a mugs game, especially if your competitors are also powerful, have deep pockets and don’t have the additional worry about a loss making social media platform or sending rockets to Mars.
This is why Tesla Investors are a tad nervous at the announcements of price cuts across the Tesla range. Musk is making no bones about it – the price cuts are there to stimulate sales. In other words, he is following the old discount supermarket model of Stack ‘em High, Sell ‘em Cheap. While the “Sell ‘em Cheap” bit is easy enough to achieve, the “Stack ‘em High” part is eluding Tesla at the moment as its production level is lagging demand for Tesla vehicles, a situation made worse by the price cuts. All that is happening is that the reduced margins are causing profits to fall faster than the Starship wreckage.
To be fair to Musk, there is some semblance of a strategy in the price cuts in that he is banking on his autonomous driving technology software to eventually boost profits (Tesla will sell the software as a $15k add on). All well and good but the question is when this windfall is likely to manifest itself.
Musk has stated (with his fingers crossed) that they are looking to launch the FSD (Full Self-Driving) software this year. That’s a tall order and, even if they do, there is still a question mark on whether the market is ready for it, bearing in mind some of the high profile crashes in the past. Regulators may also want to have their own say.
So, it is a very brave bet by Musk because once prices for the main products are slashed, it is going to be pretty difficult to raise them again, leading to a long term profit decline. These are nervy times for Tesla Shareholders, to say the least.