On April 16th, Tesla initiated its fifth price reduction for 2023 in the United States, which has attracted widespread attention. Some people believe that Tesla is launching a price war between electric and gasoline cars, while others are curious about why Tesla is lowering prices during a period of high market demand.
In response to this, Musk made a statement on Twitter. He said, “We are not ‘starting a price war’, we are simply lowering prices to achieve scalability and affordability.” His point is that Tesla’s goal is not to defeat competitors, but to make electric cars more affordable for more people.
It has been noticed that Tesla’s price reductions are quite astonishing. Taking the Model Y as an example, the price dropped by 24% from $54,000 to $41,000 in 2023. This is very rare in the automotive industry, as new cars typically increase in price to maintain profit margins. However, Tesla has consistently lowered costs and prices, even making the Model Y cheaper than the average price of a new car in the US ($46,000) and eligible for federal tax incentives.
Why does Tesla do this? Some analysts believe that Tesla does not rely on traditional media advertising to promote its products, but instead attracts consumers through social media and word of mouth. Tesla and Elon Musk himself have millions of followers on Twitter, where they attract attention by releasing the latest product information and technological developments. Therefore, Tesla can save a lot of advertising costs and use this money to lower prices.
But more importantly, Tesla does not see itself simply as a car manufacturer, but as a software company. Tesla’s biggest bet is its Full Self-Driving (FSD) software, and if this software can be successful and gain government and societal recognition and support, Tesla will have a huge and stable source of income. Therefore, Tesla hopes to produce and sell more cars and connect them to its network.
