Tesla’s dynamic pricing echoes legacy sales tactics

Tesla has been offering its own incentives, in addition to price cuts, such as deep discounts on inventory vehicles. The automaker has also offered free charging on its national Supercharger network and additional vehicle discounts for using a referral code from current Tesla owners.

The EV maker also began offering 84-month loans this month after a previous maximum of 72 months, according to its website. The seven-year loan is a tactic gleaned from legacy automakers to draw in buyers focused on monthly payment amounts rather than on total vehicle cost.

“We don’t control the macro conditions,” Musk said of the current economic climate on last week’s earnings call. “If macro conditions are stable, I think prices will be stable. And if they are not stable, then we would have to lower prices.”

Musk wants Tesla sales to grow by 50 percent annually for the foreseeable future, reaching as many as 20 million vehicles a year in a decade. That growth would include autonomous taxis that Tesla intends to build, with “quasi-infinite demand,” Musk clarified last week.

Last year, Tesla opened new plants in Austin, Texas, and Berlin and expanded its factories in Fremont, Calif., and Shanghai. Tesla said in its second-quarter earnings statement that global vehicle production capacity is just over 2 million vehicles per year.

The automaker remains highly profitable, reporting a 20 percent increase in second-quarter net income to $2.7 billion, allowing it to keep prices relatively low as it pursues growth.

But one disadvantage Tesla has compared with legacy brands is its lack of a dealer network to soak up excess inventory when demand softens. That’s one reason why Tesla switched gears this year after raising prices during the pandemic when demand outstripped vehicle supply, analysts said.

“One of the strengths of the direct-to-consumer model is that you get total channel profits both as a manufacturer and a retailer,” said Tyson Jominy, vice president of data and analytics at J.D. Power.

“Where the direct-to-consumer model falls apart really quickly is whenever you get inventory building,” Jominy said. “As inventories have started to rise on average for Tesla, they have been very aggressive on prices to keep their lots moving. They have to be very proactive.”

But on the other hand, inventories of electric vehicles in general have been rising rapidly in recent months — despite robust sales — opening up the possibility that legacy automakers may follow Tesla’s lead and cut prices or further boost incentives to move cars off dealer lots, Jominy said.

“At the end of June, we’re seeing close to 90 days’ supply of EVs on dealer lots,” Jominy said. “So maybe we’re going to start to seeing some aggressive pricing actions here in the third quarter.”