The Impact of Tesla's Price Cuts on its Direct-to-Consumer Sales Model and Dealership Network

Like the owner of the company, Tesla itself could be more predictable. Tesla has been known for its expensive cars and came into the market with prices touching the roof.

A sudden change in prices left everyone shocked. Tesla recently slashed prices on its Model 3 and Model Y in Europe, Israel, and Singapore. The price-cutting changed the E.V. industry and put Tesla's competitors in a tough spot. 

As of the total cuts, the Model 3 in Israel was down to 25% of its original price. The price drop made the car super affordable and in high demand. As for Singapore, they noticed a price drop of 4.3% to 5%.

How Tesla Approached Things?

Tesla has always approached things differently. This technique made Tesla stand out in front of its other competitors.

Tesla used a different concept to engage with its customers. It follows the direct-to-consumer sales model instead of the standard dealership method. 

This strategy changed the way the company works. Instead of adding another party, it makes its vehicle and sells them directly to the customer.

The significance of direct-to-consumer sales allows it to rule the industry. It does not have to spend a fortune on dealer markups or franchise fees. 

NIO effectively registered their Class A common shares on the Main Board of the Singapore Exchange Securities Trading Limited (SGX-ST) with the code "NIO," thereby becoming the first automobile and Chinese business to be registered on three Trades.

The trades are listed in New York, Hong Kong, and Singapore. This NIO Singapore stock exchange made it to the headline as a significant achievement for the company. 

The second largest in the market, BYD also slashed prices to attract its customers. After Tesla's surprising price-cutting decision, the new model of the company Seagull went from 78,800 yuan to 73,800 yuan. 

Tesla's Direct-to-Consumer Sales Model

Unlike other automobile companies, Tesla distributes straight to people rather than via franchised dealerships.

It has established a global system of company-owned stores and galleries in metropolitan areas.

Tesla thinks that by controlling the channel of distribution, it could accelerate product growth. But, more significantly, it improves the client's purchasing journey.

Tesla displays, unlike E.V. dealerships, need more potential issues of interest. Therefore, buyers solely speak to Tesla-employed sales and service representatives.

We have observed plenty of benefits Tesla gets through this approach. This technique involves spending less money on dealership markups and franchise fees.

When selling, they get all the profit and save instead of giving to the third party.

Along with that, this technique has enhanced the customer experience. Tesla faces a minor service delivery issue. It focuses on its purpose, and the user experience automatically improves. 

After seeing this approach benefiting Tesla more than one can imagine, many plans to switch to a direct-to-consumer sales model.

Spikes Ford has also divided its resources into two. One focuses on gasoline-powered vehicles, while others focus on E.V.s. 

After observing the Tesla numbers go up even before Tesla's price cuts, it plans to adopt the same strategy.

Direct-to-consumer sales give Tesla a better hold on its sales, and which E.V. company wouldn't want that?

Although this strategy worked perfectly, many criticized Tesla for not giving enough importance to the dealership model. Nevertheless, the Dealership Model has its benefits and follows a proper approach in the industry.

In 2014, Tesla's model got banned due to this new approach. Tesla has minimal access to test driving, and most people must realize what they are signing up for while purchasing. Direct-to-consumer has its pros and cons. 

Impact of Price Cuts on Direct-to-Consumer Sales

Tesla's price cuts were a punch in the throat for its competitors. For the last two years, the prices have been "embarrassingly high," Elon Musk warned of reducing costs while his orders exceeded supply. It created a positive impact on Tesla's direct-to-consumer sales. 

The incentives might make electric vehicles more accessible to consumers priced out of the sector.

Customers in the United States and France can use both nations' reductions and tax credits for specific electric car sales.

Tesla's worldwide peak sellers, the Model 3 and Model Y have gotten their prices cut down.

Ranging from 6% to 20% in the United States, with the base Model Y currently priced at $52,990 instead of $65,990.

Tesla's Dealership Network

Tesla has been making waves since its start. It has made its network so strong that they want no third party between them and their customers. 

While major manufacturers are starting to provide electric vehicles, the company's long-trip charging choices might be restricted – often relegated to separate third-party systems.

Meanwhile, Tesla has built a private Supercharger system, which has become the sector's "gold standard."

Unlike traditional automakers, who offer via authorized dealer networks, Tesla has worked day and night to market its cars directly to customers.

While purchasing, several states demand automobiles to use distinct retailers, but Tesla has carefully broken these regulations as time goes on. 

It found substitute ways to sell, such as offering out of neighboring states and renting rather than marketing directly to consumers, moreover, trading online to get around prohibitions on in-person sales.

The firm also effectively campaigned to reform franchise legislation in several states.

You may pass a gallery or showroom owned by Tesla on your way. It started low but is now one of the significant ways for the company to make purchases.

It displays its brand in a way it intended to. Till last year, 160 stores were noticed in the U.S., whereas 38 stores work in Germany. The U.K. with 20 and Switzerland with 19 stores make sales. 

Tesla's limited dealership network puts Tesla in a safe spot. Tesla believes that by dominating the means of distribution, it will be capable of speeding up the development of its products. By direct-to-consumer sales model, the company looks over the sales.

They have complete control of the brand and its working. The company and employees, also known as Tesla Rangers, manage everything, from the store to the office. 

More importantly, it enhances the consumer purchase experience. Unlike E.V. retailers, Tesla displays are devoid of possible concerns of relevance. Buyers only communicate with Tesla-employed sales and service staff.

We've seen a slew of advantages for Tesla due to this strategy. Direct-to-consumer sales model entails paying less for retail markups and franchise charges. If they make a sale, they keep the entire profit and do not have to provide it to someone else.

This strategy has also improved client satisfaction. Tesla has the fewest problems with service delivery. It stays focused on its goal, and the consumer's experience improves. 

Impact of Price Cuts on Dealership Network

Direct-to-consumer sales model strategy is designed to enhance the user experience and benefit the company side by side.

Elon Musk decided to slash prices to meet up to the demand. However, the consecutive price cuts have greatly impacted its dealership network, giving Tesla competitors a tough fight. 

Cox Automotive executive analyst Michelle Krebs believes, "There's demand weakening, and they want to improve their sales — or it's a market share grab."

Even though these price cuts were a win-win situation for many, a few Tesla owners complained that the company was devaluing their cars by these price cuts. 

The reduction came before Tesla's first-quarter earnings report, released on Wednesday when the stock market closed. This report provided insight into how earlier cuts have impacted the company's top-of-the-profit margins.

Tesla has lowered pricing in several regions worldwide to keep ahead of heritage U.S. rivals like Ford Motor (F.N.). It also tries to keep up with Chinese manufacturers like BYD Co Ltd in its second-biggest market.

These price cuts helped Tesla regain foot traffic as the prices reached their demand. Moreover, this unexpected decision made the headlines and resulted in brand exposure.

This year's April is all about Tesla and its unpredictable decision of price cuts. But the question remains unanswered: how long will Tesla price cuts last?

Model 3 vs. Model Y

Elon Musk decided to take his Model 3 and Model Y to give the sacrifice of being sold at a lesser price. So let's look at the features of both models in depth. 

Model 3 is guaranteed to have a range of 358 miles, whereas Model Y can cover up to only 330 even though you see a significant difference between the two models, both charge 250kW.

Moreover, Model Y has a top speed of 155 mph, and Model 3 has an impressive 162 mph. There's not much difference, but after testing, it was observed that Model 3 only takes 3.1 seconds to reach 60 mph. At the same time, Model Y takes 3.5 seconds.

Considering the prices, Model 3, after price cuts, is only $43,990. Tesla Model Y's price history shows a significant drop, from $65,990 to only $52,990. 

It was believed that the prices that were skyrocketing were decreasing the demand. The strategy for aggressive slashing was made to balance the need. The company was ready to choose sales over making a profit. 

Because of the direct-to-consumer sales model, Tesla has proper control over its company, and no third-party involvement exists.

This way, the sudden decision regarding price cuts was forwarded and came into action. This is one of the reasons they adapted to the trend so quickly. 

Tesla Stock and Price Predictions

As big of a company as Tesla is, it was surprising to see the Tesla stock drop. Even after the price cuts, the stock numbers were disappointing. Many reasons led up to this result.

The first is the competition. It is well known that even though Tesla started the E.V. industry, it is now not the only industry in the game. Many alternatives can offer excellent electric cars in a more affordable range. 

Along with it, a few supply chain issues were also noticed. Again, it wasn't something new, but definitely, a thing to look into now.

The time has come for Musk to get a right-hand genius to help him with the operation.

Back in 2017, Musk promised to deliver 500,000 cars a year. Unfortunately, this was an impossible task to reach, even after pulling an all-nighter. 

Lastly, there were a few issues in the regulation department of the electric car. The U.S. regulators have ordered 363,000 Full-Self Driving vehicles to be recalled. It is an impressive yet misbehaving feature of the car.  

Tesla's stock forecast for 2025 seems excellent. Based on previous performance, the 2020 EPS increased from $0.25 to $3.6 two years later.

By this, EPS is predicted to reach $6.89 by 2025. 

We are attempting to remain hopeful despite Tesla's Q1 2023 Earnings Report showing a drop in sales. Experts predict that by 2025, it will have reached a new high of roughly $164 million. 

Conclusion

Tesla's recent price cuts have significantly impacted its direct-to-consumer sales model and dealership network. This is because the company sacrificed the expensive pricing it was known for to meet the demand factor.

The surprise turn left the owners and competitors in shock. But it was a team effort to be back in the game.

The price cuts were able to not only attract the customer but also promote the brand name. This way, they believe it will gradually increase the growth and sales of the company.

The challenges also arise as it will also have a possibility to decrease the profit margins. This will harm the financial performance of the company. 

Tesla will overcome this hurdle and learn from its mistakes. Then, it will likely follow its direct-to-consumer sales model and work to take more advantage of it. This way, it will still hold the dominance in the industry.