[KRS_SN]

Originally Posted by Efthreeoh

Awesome post. Not flaming. Rather quite on point. Profit is such an illusionary Accounting concept.

True...Carbon credit discounts incoming to maintain profits

[chad86tsi]

Originally Posted by GrussGott

All of your points are yet to be seen - maybe! - but there's a good argument they're wrong:

$TSLA's price cuts are big gamble due to what might be "inelastic demand".

That is, customers *used* to place a premium on $TSLA products, thus when prices went up, demand growth remained steady. That's pricing power!

But the downside is, when prices come down, customers no longer place (as much of) a premium on the product so demand remains mostly unchanged, even though prices fell / are falling.

Dominos pizza had this during the lockdown: lots of demand, lots of pricing power! But once lockdown was over, customers realized they're tired of eat-in pizza and since there are other options now, they went back to once a week even though Dominos lowered prices!

It's not that Dominos has a bad product, but consumers realized they had better options.

There's some recent data supporting Tesla's inelastic demand; the latest Morning Consult survey for the US shows the # of consumers planning to purchase a BEV this year fell from 22% in 2022 to 17% this year. When you combine this with Edmunds 2022 trade-in data which shows that 50% of people trading in a Tesla buy an ICE vehicle (incl PHEVs), it doesn't bode well.

On the positive side, the survey data also said that 66% of people not planning on buying a BEV listed the top reason as price - so that could be a good sign.

That said, I've been slinging product for a few decades and Tesla products look to me like once hot products now fading, and price cuts won't do much to help due to inelastic demand.

My hunch is, without new products Tesla sales will get a bump here, but then continue on their same trajectory, which will mean they're stuck in inelastic demand hell.

On the flip side, the legacies are just releasing their products so they could wind up still commanding a premium.
And speaking of that premium, the benefit of a dealer network is a professional sales team to move buyers from ICE to BEV and a service department to back it up.

Back in the 1930s Ford lost its leadership position to GM and never recovered it; the reason was stale product.

(And Ford tried lowering prices, but it didn't work)

A week ago we were discussing one strategy Tesla had to weather this price/demand storm was to move down market with new or decontented product. It was stated by others they wouldn't want to do that due to segment saturation and competition, and because it dilutes the value of the brand, and that brand its were a lot of their demand and profits comes from.

This re-price effectively moves them down market with their upmarket product. It will dilute not just the brand, but their existing/established upmarket product too. I do think it was a smart survival move short term to stay in the black, but I question the long term consequences will be worth this brand erosion. A large part of that has to do with what it has done to existing owners and their equity in the cars they already have. It alienates a lot of them. Many are instantly upside down on their loans, and the mystique and brand snobbery just got shattered.

Other niche upmarket brands have reduced production and tightened their belt when faced with similar demand pressure. They stayed upmarket and waited out the cycle. That's lost short term profit, but those brands are all still in business, and their vehicles still hold value.

Tesla recently hit the highest "luxury vehicle" production numbers. It has been claimed the reason they are a "luxury brand" is their price point", and let's face it, they aren't luxury interiors. When that price point falls, so too does this "luxury" status.

Tesla has choices/options. This is what they chose to do. I hope tesla gets/got this right, but suspect it will cost them more than it saved.

[StradaRedlands]

Originally Posted by KRS_SN

It was being argued that tesla make a profit of 9.8k per vehicle hence they'te awesome. Now that they're reduced their price by nearly that much they're awesome as they have capacity to reduce prices. What about profit then. Or is that awesome too.

Doesn't most of their overall profit come from selling carbon credits? As long as they're breaking even on their cars (or maybe a slight loss), they have that income stream that's a money maker for the company.

[chad86tsi]

Originally Posted by StradaRedlands

Doesn't most of their overall profit come from selling carbon credits?

And bitcoin.


Kind of hard to not profit on free money (carbon credits). Carbon credits are about to shrink because other brands no longer need to buy as many, and bitcoin is still down, and now they have had to slash prices on the actual product they do have domain over. Not good...

[GrussGott]

Originally Posted by Efthreeoh

Didn't someone... say that he didn't see how Tesla could afford to keep periodically redesigning its products to keep them fresh

Well, if they did, they're demonstrably wrong!

Tesla can easily afford to make new consumer auto products, they've simply chosen NOT to do that, instead dumping tons of capital into:

• Image-only AP/FSD
• AI
• Tesla Semi
• Tequila
• Shorts
• etc

This:

Originally Posted by chad86tsi

Tesla has choices/options. This is what they chose to do.

Right now all the Branch Elonian Muskateers be like:
"ZOMG lower prices means YUGE sales!"

The thing is, none of these people have ever slung product (or, apparently, taken an economics class) because there are few truisms here and one is inelastic demand that I already posted about but, more broadly, it's how supply & demand works:

(1.) Usual, expected scenario
Yes, in strict supply/demand, lower prices = movement *on* the demand curve ... BUT

(2.) Unexpected, frightening scenario
Sometimes a fall off in demand is due to movement *of* the demand curve! See Ford in 1931

There are basically 5 reasons this can happen:

a.) More consumer income like, say, due to low interest rates and/or stimulus checks

b.) Fads, like, say, the cronut: big today, eh tomorrow

c.) Scarcity, like, say, due to supply chain shocks

d.) Comprables, like, say, new competitor products just coming to market (see GM in 1931)

e.) # of buyers increases or decreases

Now, I ain't no genius, but I'd say 4 of those 5 are moving against Tesla and this is before the consumer data that's been rolling in:

* BEVs are falling in consumer consideration set
* 50% of Teslas are traded in for not Teslas
* Tesla inventories are increasing
* Used Tesla prices are falling
* Tesla is actively cutting prices
* Tesla brand favorability is falling quite drastically

It's kinda hard to make an argument that Tesla's demand curve *isn't* shifting ... and if we agree it is, then lowering prices probably won't help due to that ole inelastic demand thing.

And, like I said, this same exact thing happened to Ford in the early 30s and it happened FAST! Like within 9 months Ford went from leader to lagger and never recovered to this day.

[overcoil]

Have not been following this thread, But saw Demuro's YouTube video today.

Does tesla not have the best software to battery to electric motor system on the market or do other manufacturers match Tesla's charging rate and and mileage / kilowatt hour ?

[chad86tsi]

Originally Posted by Caravaggio

Have not been following this thread, But saw Demuro's YouTube video today.

Does tesla not have the best software to battery to electric motor system on the market or do other manufacturers match Tesla's charging rate and and mileage / kilowatt hour ?

There is more than one question above, one subjective, one objective. Objectively, there are others that beat Tesla's charge rate.

[dmanb2b]

Originally Posted by Chihuahua

Yep, I've never, EVER, EVER seen an ICE car engulfed in flames on Georgia 400 on my way downtown with two lanes of traffic blocked by emergency vehicles dousing said car with water. Never.

Let alone BMW's randomly catching fire while sleeping in the garage...never

[ASAP]

The massive Tesla price drop is truly something interesting.

The Model 3 performance drops to below 55K and now can also qualify for the $7.5K tax incentive...

If I just bought a Tesla I'd be fuming... apparently used Carmax inventory went on a firesale as well with over 65% of the inventory selling in days.

With Tesla's high profit margins... curious to see what this means... I think this is a good move on Elon's part... one that we haven't seen in a long time. I would however be furious if I just bought one .

[ASAP]

Originally Posted by Efthreeoh

And that's the problem with a direct-to-customer sales manufacturer. With no dealership in the middle, when the manufacturer reduces the direct-price-to-the-customer, people who bought the same product a few weeks before get pissed because of the volume of dollars involved. The legacy dealership model allow the manufacturer to adjust pricing indirectly through incentives at the dealership level.

Right but arguably that's the fairest setup as everyone gets screwed equally.

With the dealership model, some guy may pay 6k under msrp and another 3k over msrp.... that then becomes selective screwing limited on your area. This is allows massive taking advantage of customers in large / hot markets or on special vehicles.

Think about it this way... if Porsche was selling vehicles this way... would we ever see a $100K over msrp Gt3?

[ASAP]

Originally Posted by Efthreeoh

Outside of the rare case of specialty, limited production vehicles, the dealership model is better for the consumer. Multiple dealers in a market compete against each other and keep prices competitive for on-the-lot models. People get all wadded up when a pandemic hits and severely limits inventories, which forces pricing to not be as elastic, but the dealership model still supports competitive pricing by reigning in ADMs. You have to look at the entire spectrum of the market, not just a GT3. There's no mechanism that prevents Porsche under a direct sales model to not charge $100K more for the GT3.

I am trying my best to understand how any of this truly differs in a dealership model... the manufacturer tomorrow can drop and / or raise the msrp as they see fit. It then just comes down to how much of a bath or profit each dealer wants to pursue. If Porsche raises the Msrp by $100K... that's the new price, they are the manufacturer... but that's absolutely no different to how things would work today.

The only difference is 1 person makes the decision in direct sales which again is the absolute fairest way as opposed to 1000s.

[ASAP]

Originally Posted by Efthreeoh

You are looking at the dealership model too simply. There is a complex business relationship between the dealership and the manufacturer. The MSRP is just that, the suggested retail price, which has no bearing on the price the dealership buys the vehicle for from the manufacturer and sells it to the customer. The price adjustment off from MSRP, whether up or down, is made in the middle at the dealership level, so the visibility of the price change is not on the manufacturer, but rather on the dealer. In the dealership model the manufacturer does not adjust down the MSRP (number) it offers rebates and incentives, which is just code for selling the vehicle to the dealer at a lower price that the customer does not see because he is not privy to the business relationship between the dealer and the manufacturer.

When the manufacturer is selling direct to the customer, the customer is privy to the business relationship because it is his relationship directly with the manufacturer. So, when Tesla drops its price to the customer by $5,000, the customer who just bought prior to the price reduction gets pissed because he deems it as unfair. With a dealer involved, the perception is the customer who paid less at the dealer simply got a better deal since the MSRP did not change. The retail price of a Tesla is not a manufacturer suggested retail price (MSRP) it just simply the Manufacturer's Retail Price (MRP).

The dealership model even when in an environment of ADM, competition between dealerships on who sells the model at the lowest ADM is good for the consumer. Without the dealership, Porsche can just sell the GT3 for $100,000 more than what it previously offered as MSRP. In that case there is no competition on price, which is bad for the consumer.

Fundamentally none of this changes anything to the customer... as in who he is dealing with. It sounds like the arguement being made here is that Variability in price is more fair than a fixed price... i am arguing against that... it works just like the legal system with the variability, you either got a good high priced lawyer or you didn't.

There is nothing currently preventing BMW dealers to massively discount any cars... in fact, this is normal and 6-10% discounts come and go as needed. I bought my x3 3 months ago and paid msrp... now some are getting 8% off... who do I complain to? Well I can't really complain to anyone... To a customer, whether it happens at the mrsp or dealer level, it makes 0 difference... the big difference is uniformity in price which the Tesla model helps. In fact, up until this point, Tesla resale value has been higher than most brands because a random guy won't go to a random dealer and get a huge discount on a new one.

As far as ADMs... well, would you prefer your markup go to a dealer (middle man that offers no value) or the manufacturer that built your sweet 911 and can build many others? Again, I know my answer...

[chris719]

Originally Posted by Efthreeoh

Outside of the rare case of specialty, limited production vehicles, the dealership model is better for the consumer.

No way. Perhaps it is worse for the most savvy customer, but on the whole it will greatly benefit people when dealerships are gone.

[GrussGott]

Originally Posted by Efthreeoh

And that's the problem with a direct-to-customer sales manufacturer. With no dealership in the middle, when the manufacturer reduces the direct-price-to-the-customer, people who bought the same product a few weeks before get pissed because of the volume of dollars involved. The legacy dealership model allow the manufacturer to adjust pricing indirectly through incentives at the dealership level.

I think this is a HUGELY critical point that gets very little of the attention it deserves!

A great example of this is cable TV channel affiliate fees that ESPN more/less invented in the 80s:

As a cable channel I'm limited to ad sales with no access to the sweet sweet pot of subscriber fees the cable companies like Comcast get ... unless I charge the cable company a subscriber fee to carry my channel!

And why shouldn't I because what's the downside? The cable company will have to pass along my fee to all the paying suckers, I mean subscribers, and who are those consumers going to be pissed at? Me, ESPN? Fuck no, the average consumer doesn't understand any of this crap! They're gonna be pissed at Comcast!

So if I'm ESPN I just keep jacking up my profits via affiliate fees and let Comcast handle the

Efthreeoh I think you nailed it here: dealerships insulate automakers from consumers and this protects their profits & reputation while, in general, keeping prices down.

BUT. That's only going to be fully true for a high supply market ... and we might not get back to that ... but we might!

--- Ramble ---
because I find it hard to believe that eventually dealership a isn't going to decide he'll keep just a few extras around for those impulse buyers ... and then dealer b keeps just a few more than dealer a and and and we're back to normal. But we'll see ...

Originally Posted by chris719

No way. Perhaps it is worse for the most savvy customer, but on the whole it will greatly benefit people when dealerships are gone.

Originally Posted by Efthreeoh

Outside of the rare case of specialty, limited production vehicles, the dealership model is better for the consumer.

I think we gotta break down what it is dealerships do:

(1.) New car showrooming, test drives, etc
(2.) New car sales & sales support, i.e., configs
(3.) New car warranty service
(4.) Used car showrooming & sales
(5.) Used car service

At this point I should mention that I've special ordered every car I've bought for the last 15 years (~8), all BMWs, and 95% of them I worked directly with BMWNA on (zero dealership engagement except as a pass-through), but mostly I worked 1-on-1 with a BMWNA employee. My point being, I fucking hate dealerships.

That said, the last car I bought, Nov '21, was my first non-ED in a long while and overall it was a great experience and I was pretty shocked, but I also think it was unique to that dealer & that time and not typical.

ANNnnnyyYYYway, what I'm trying to say is:

(1. & 2.) DTC new car showrooming, sales & sales-support
To Efthreeoh's point, automakers aren't going to like dealing with customers
And customers still need a place to showroom & order config ... Lincoln is leading the way in way with its Arizona boutique, but that's still being done in coordination with a local dealer!

(3.) New car warranty service
Tesla's service is so horrible Musk had to publicly comment & address it this past year and they're volumes are sub-2M globally! Do we really think auto makers are going to build these capabilities or will they continue outsourcing to dealerships? HINT: rhetorical question.

(4. & 5.) Used car sales & service
Tesla will not be able to continue ignoring this (including giving mechanics access to software) and auto makers generally don't want this any more than Rolex wants to sell pre-owned watches (no, their new program doesn't actually see your buddy's watch for him) AND this is dealerships biggest cash cow.
-----------

So, the TLDR is, I suspect automakers will start getting more involved with new car sales process (including ordering & build updates!) - and this is especially true with software OTA updates! - but I doubt dealerships are going anywhere for a lot of good reasons.

[ASAP]

Originally Posted by Efthreeoh

Then why is social media all in an uproar that Tesla dropped its Manufacturer's Retail Price?

Your lawyer analogy makes no sense; the same model car offers the same performance and has the same features regardless of where you buy it and what price you paid. Lawyer performance is variable and not related to price; you can pay a high-price lawyer and he can fail to win your case or negotiate a good contract for you.

If you don't think price competition between dealers is good for the consumer, then I can't help you here. This is common knowledge; most people understand paying less for the same product is... better.

Social media moans about everything... so i disregard it... Tesla gets a ton more attention as a manufacturer so of course it will be more in people's eyes.

Here is the deal-

I am looking to buy a car... I call up the manufacturer, pay a price and the transaction ends. My neighbor a week later wants to the same... he gets the exact same deal.... my other friend 5 states away, does the exact same thing 6 months later, same story.

1 year after that Tesla reduces MSRP... All of our values go down equally irrelevant of what we paid. This keeps a fair and balanced market. This price reducation is a major rarity that so far has happened only once and probably will not happen again (it actually probably happened to get people into that 55k msrp tax credit again so some could argue this was a legal move as well). Who are the people that are screwed here? Only individuals that just purchased a car and missed on the deal (just like they would be in a dealership model). The used car market takes an identical hit and everything is controlled.

Now, I am looking to buy a BMW. I bought my car at 5k off... my friend paid over msrp... my other friend couldn't get an allocation in his area and yet another friend paid sticker... and then another friend bought one at msrp but got charged a bunch of add ons. 1 year passes, BMW is now offering 2-3k incentives and all dealers are discounting between 6-10%. We also all got screwed just in different ways... anyone that paid msrp or over got screwed at random levels... the one off wiser consumer that got lucky and bought below msrp because he knew bob the owner and already purchased a few cars, made out the best but is technically also screwed because the current discounts are greater.
Option 1 is completely democratized... Option 2 has so many variables that no one can really tell what is going on.

In option 1 used resale values got hit evenly on a once in a 10 year decision... Option 2 resale values are getting pummelled and will continue to get pummelled irrelevant of what you really paid every time BMW does this. I know what I prefer without all of the dicking around... Only dealers would want option 2.

I am guessing that you guys are part of the group that think the alcohol 3 tier system on the USA is also a good thing lol. That was also meant to protect the consumer lol.

[Burrcold]

Off topic but where has that BG3....guy been? He usually has a lot to say about Tesla and EVs in general lol

[SoCal_NSX]

Originally Posted by Efthreeoh

I think his cars are ugly and people no longer want to be seen in them. I don't think Tesla can afford to redesign the product AND build additional manufacturing infrastructure AND invest in driver aids.

meanwhile Tesla just took over BMW as the number one luxury brand in sales in the US and it's not even close....beauty is in the eye of the beholder


I used to be closed minded about them, but then I test drove a few of them and started looking into them a bit more seriously and now with the new prices...
I might be ordering one of the Model Y's

and never spending $300 in gas to take the Sea Doo's out to the river and back ever again is pretty appealing


with the right wheels and stance you make them pretty good looking

[G80indy]

Originally Posted by SoCal_NSX

meanwhile Tesla just took over BMW as the number one luxury brand in sales in the US and it's not even close....beauty is in the eye of the beholder


I used to be closed minded about them, but then I test drove a few of them and started looking into them a bit more seriously and now with the new prices...
I might be ordering one of the Model Y's

and never spending $300 in gas to take the Sea Doo's out to the river and back ever again is pretty appealing


with the right wheels and stance you make them pretty good looking

Are the SeaDoos electric too? 😉

[x622]

Originally Posted by SoCal_NSX

meanwhile Tesla just took over BMW as the number one luxury brand in sales in the US and it's not even close....beauty is in the eye of the beholder


I used to be closed minded about them, but then I test drove a few of them and started looking into them a bit more seriously and now with the new prices...
I might be ordering one of the Model Y's

and never spending $300 in gas to take the Sea Doo's out to the river and back ever again is pretty appealing


with the right wheels and stance you make them pretty good looking

Tesla is a luxury brand now?

[Housekeeping]

I adore my Model S Plaid, it’s a blast to drive, not a creak inside and a damn nice place to spend time. Just smoked a new M5 Comp the other day too. I’m a BMW loyalist and currently have three M car, two M5s and a ‘17 X5M. If I had to buy one car today, I’d not even consider an ICE, given me another Tesla. Tech is insane and blows anything else on the market away. Don’t all be haters…

[SoCal_NSX]

Originally Posted by x622

Tesla is a luxury brand now?

when the cheapest model you offer is $44K and also sell $130K SUV , yeah you are considered a luxury brand


https://electrek.co/2023/01/11/tesla...auto-brand-us/

[SoCal_NSX]

Originally Posted by G80indy

Are the SeaDoos electric too? 😉

no, that's why it would be nice to not spend so much $$$ on gas just taking them to and from the lakes, ocean or especially the Colorado River which is about 250 miles away...there is a company that is making electric ones tho

My 2021 Rubicon gets about 10mpg towing them