Bloomberg reports that Tesla is making it harder to order the 35K Model 3 vehicles:
Tesla Inc. is making it more difficult to buy the $35,000 version of the Model 3 sedan that used to be viewed as pivotal to its growth.
The electric-car maker announced another series of changes to its lineup and pricing late Thursday to “simplify vehicle choices.” All Tesla vehicles that can be ordered online now come with the driver-assistance system Autopilot standard, the company said in a blog post. The Model 3 with Standard Plus now costs $39,500 with Autopilot included.
Tesla’s reversal on price is within 6 weeks of announcing the 35K products and on the heels of the poor 2019 sales report. The 35K Tesla was a bad idea that should have never been pursued with such adherence.
On the blog, I have been steady on the need for a steady hand and long-term perspective at Tesla. Let’s recap the thoughts from the post, Tesla scales back, in which I discussed shutting down showrooms to reoptimize product mix to reach 35K target dilutes Tesla’s service and stifles its high-end customers. I wrote:
35K is a Specious Goal, which attracts Tesla’s Worst Customers.
Finally, these cutbacks are to meet the $35K price for Tesla 3. I understand that this price is a long-standing personal commitment and aspirational goal set by Musk himself. The investors on the street have definitely been egging Tesla on to achieve this price point.
However, 35K is not a very sacrosanct number. It was made years ago, when the market was vastly different. Most importantly, all the price-cuts to attract the least profitable class of customers that Tesla will now have. Here is the crux of my argument:
Tesla is in effect scaling back its top-level service from highest end customers, to meet an arbitrary price point, that is desired by less valuable, highly price-sensitive and probably less-loyal new customers.
This can only be a short-term action.
Let’s not forget that these customers are not exactly the masses. Customers in the market to buy a $35K for the lowest end Tesla are not economically poor. These buyers are quite likely in the upper middle class, and can easily afford to buy other cheaper electric cars, and are probably buying Tesla as a second car. They would also expect the same high end service offered by $40K+ SUVs of other luxury automakers. They, have mostly held out on buying Tesla, balancing their anticipated fuel savings and their sensitivity to the earlier, higher price point. (In fact, US car loan data suggests that Tesla purchases are upmarket. The average car loan is about 30K and about 20 percent of borrowers are taking out loans of $50,000 or more).
Now, Tesla’s back to the right pricing strategy, but for wrong reasons (slumping quarterly sale data) and unfortunately this step is not going allay fears that the demand is thinning.
Tesla needs to produce more units per week to maintain a healthy utilization of capital investment in their Fremont plan — in fact, the Tesla blog points out that they “have made the decision to simplify our production operations to better optimize cost, minimize complexity and streamline operations“ but the price-point was clearly poorly set. Tesla has always argued that the following as their master-plan, as early as 2006
So, in short, the master plan is:
- Build sports car
- Use that money to build an affordable car
- Use that money to build an even more affordable car
It is just that I think that their most affordable car doesn’t need to be at step 3.
Later on this blog — Tesla’s Rideshare plans.