Tesla's aggressive price cuts have sent shockwaves throughout the automotive industry, sparking fears of a potential all-out price war. However, according to experts at Morgan Stanley, the price war was short-lived and did not have the same effect as earlier adjustments.
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The Chinese electric vehicle market, in particular, has seen a decline in positive reactions to Tesla's price reductions. While the initial cuts helped Tesla shore up demand in the face of increasing competition, subsequent reductions have not seen the same response. In fact, some Tesla customers in China have even demanded refunds for the difference in price from when they purchased their cars just weeks or months earlier for a higher cost.
According to estimates from Morgan Stanley, 30 to 40 percent of Tesla's profitability comes from the Chinese market. Its biggest competitor in the region, BYD, has also introduced discounts, but waning reactions to those "mark another climax of the price battle." Analysts suggest that April could be a turning point in the price war, as the market focuses on new vehicle launches and less inventory risk of legacy models.
Similar price cuts were made in the US earlier this year, with Tesla reducing prices on the Model 3 sedan and Model Y SUV by up to 20%. Automobiles saw a massive increase in interest and demand, prompting others to consider lowering their prices. However, several automakers, such as GM and VW, chose not to participate in the competition in the market.
The price cuts aimed to undercut rivals and boost Tesla's market share, which fell from 79.4% of the EV market in 2020 to 65.4% last year, as more companies launched EV products.
However, Tesla's price cuts have not been without negative consequences. Several recent Tesla customers felt they were left out of the discounts, while other Tesla owners requested complimentary trials of the Complete Self-Driving software or free Supercharging miles to cover up for it. Tesla owners have seen their vehicle prices go down as well.
Tesla reduced the cost of the Model S sedan and Model S SUV earlier this month, each by $5,000 and $10,000, respectively. But customers may now feel trained to wait for additional cuts, which could prolong consumer hesitancy in placing orders.
While Morgan Stanley remains bullish on the stock, prolonged price competition could lead consumers to stay sidelined and await more promotions and discounts to come. The price war may be a slippery slope for Tesla, and the company will need to carefully consider its future pricing strategies to avoid further negative consequences.
