Tesla has continued its strategy of lowering prices to maintain sales volume for three consecutive quarters this year, but it abruptly stopped in October.In the short span of less than a month, from October 27th to November 21st, Tesla raised the prices of the Model Y and Model 3 four times in a row. The price increases for the high-performance version, long-range version, and rear-wheel drive version of the Model Y were as high as 14,000 yuan, 4,500 yuan, and 2,500 yuan respectively. The total price increase for the long-range version and rear-wheel drive version of the Model 3 was also 1,500 yuan.What is the reason behind Tesla's sudden reversal in strategy?<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/65cd1bc2-c6dc-404d-b14c-54e0777a6924.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/65cd1bc2-c6dc-404d-b14c-54e0777a6924.png"/><h2>1. The price increases by Tesla are not significant, the scope is limited, and the impact is small</h2>Although Tesla's four consecutive price increases in less than a month may seem significant, in terms of the magnitude of the price adjustments and the range of vehicle versions involved, they are far from the major price reductions that Tesla has made this year.In the initial price reduction at the beginning of the year, Tesla covered all versions of the Model 3 and Model Y, with price reductions ranging from 29,000 yuan to 38,000 yuan, bringing the prices of both models to their lowest in history. In the second price reduction in August, Tesla reduced the price of the long-range and high-performance versions of the Model Y by 14,000 yuan, while the price of the Model 3 remained unchanged but was effectively reduced by 8,000 yuan through insurance subsidies.Unlike the previous strategy of lowering prices to maintain sales volume, even if the four price increases are combined into one, the magnitude is far less than the previous price reductions, and the range of vehicle versions involved is narrow, limited to a single version. Therefore, the impact of this adjustment on overall sales volume and the market is relatively limited.<h2>2. What is the reason behind Tesla's sudden reversal in its price reduction strategy?</h2>Tesla previously adhered to a price reduction strategy, sacrificing profitability in order to maintain customer loyalty and ensure sales growth in the short term during the delay in the launch of new models. In the first half of the year, this strategy seemed to be successful. Despite a decline in profitability, with gross margin falling from below 20% to 18.2% and operating profit declining for two consecutive quarters to 2.4 billion yuan, sales reached a historical high of 888,000 vehicles.However, in the third quarter of this year, the effectiveness of Tesla's price reduction strategy in promoting sales volume significantly weakened. Even with another round of price reductions in August, sales and profit performance remained poor. Tesla's sales volume in the third quarter was only 435,000 vehicles, a 6.7% decrease compared to the previous quarter, ending the continuous five-quarter sales growth trend. At the same time, Tesla's automotive gross margin also dropped to 15.8%.In other words, Tesla is currently finding it difficult to maintain market share through price reductions alone.Therefore, according to the analysis of Wall Street Journal·Intelligence Research, there may be several reasons for Tesla's frequent price increases in the past month:Firstly, Tesla's refreshed version of the Model 3, launched in September, is priced about 30,000 yuan higher than the older version, which is far from the market's expectation of price parity or reduction. In addition, the new version's price of 259,900 yuan is not much different from the price of the Model Y during the same period, resulting in a smaller price difference between the two models. This may lead to internal competition and reduce the attractiveness of the refreshed Model 3. Therefore, these four price increases by Tesla mainly focus on the Model Y, especially the high-performance version, with the largest price increase reaching 14,000 yuan.Secondly, Tesla's frequent price reductions in the past have not only triggered price wars among other new energy vehicle companies such as NIO, Xiaopeng, Chery, and Leapmotor, but also cultivated consumers' expectations for further price reductions. Tesla suddenly switched to price increases, and these multiple small adjustments are partly to send a signal of price increase to the market, reduce consumers' wait-and-see attitude, and encourage them to purchase as soon as possible.Lastly, for Tesla, further price reductions no longer make much sense. The sacrifice of profits for three consecutive quarters has put pressure on its profitability. Gross profit margin has been surpassed by other new energy vehicle companies such as BYD and Li Auto, and net profit has dropped significantly by 4% to 1.853 billion yuan compared to the same period last year. In the short term, price wars have become difficult to boost Tesla's sales volume. Therefore, improving profitability is also a reasonable choice.In conclusion, for Tesla, the industry leader in the new energy vehicle industry, price increases and reductions are only strategic means to achieve sales expectations and profit targets, rather than the ultimate goal. The follow-up and price wars triggered by other new energy vehicle companies are only incidental effects.Tesla's decision to increase prices now may indicate a temporary end to the price war in the new energy vehicle field, giving other new energy vehicle companies some breathing space. The industry is looking forward to Tesla regaining its advantage in the future market with the upcoming new model, Cybertruck.

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Why did Tesla give up on lowering prices to maintain sales volume?

Tesla raises prices four times in a row, even the price butcher can't stop it | Insight Research