Thread by @TSLAFanMtl

1/There are always many questions raised when $TSLA decreases price. Bears immediately jump to demand concerns, but the truth is, pricing strategy and pricing decisions are not *ever* the result of a single factor. Marketers understand this
Allow me to elaborate in this thread.

2/ Pricing strategy is driven by many things:

1. Corporate objectives (ex: high margin/niche products vs. mass market/market share)
2. Market size & opportunity for the specific product
3. Competitive product offerings
4. Product manufacturing cost
5. Brand/perceived value

3/ So let's explore the recent Model Y price cut. Some $TSLAQ may speculate that Model Y demand has gone to zero & the order backlog has been depleted.

Lets first remember that Model Y is only shipping to NA, and only AWD/Performance variants.

Lets also remember that...

4/ ...there is currently a 4-8 week delivery time for US orders, and 5-9 week delivery time for Canadian orders.

Any price cut $TSLA makes today is to ensure that sales 4-9 weeks from now are balanced with production.
$TSLA keeps inventory levels pretty low.

5/ Demand is not static at any point in time; it changes and can vary by region and/or by external factors.

While price is obviously a demand lever, there are other ways to influence demand w/o cutting price (ex: mass advertising - which $TSLA does not do).

6/So is $TSLA really demand-constrained for Model Y? Here is why I suspect that demand isn't the main issue:

- only shipping in NA
- no SR+
- no advertising
- no 7-seat

What I believe is more likely here is $TSLA is planning for a big increase in supply. Refer to this graph.

7/Prior to the cut, M-Y was at P1 (price) and selling Q1 (volume in units). In about 4 weeks, I am expecting GA5 to start contributing volume.

$TSLA may choose to stay at P1, but then supply would > demand. Note = there is still demand, but supply run rate would exceed it.

8/ To avoid inventory build, Model Y will reduce price to P2, and this will, in turn, lead to an increase in units sold, to Q2.

Why would $TSLA do this? They can, after all, make less units and maintain a higher margin. To understand this, we need to consider other angles.

9/ $TSLA's corporate strategy is to sell as many cars as possible at an acceptable GM and in time, secure after-sales revenues with software (+/- FSD prior to the sale).

As GA4 increases & GA5 comes online, scale ⏫ and costs ⏬. Tesla will always prioritize volume & mkt shr.

10/ Here is where the market comes in. The opportunity for Model Y is HUGE. In the US alone, the premium crossover segment is over 1.1M units.

$TSLA will sacrifice some GM% to capture a bigger share of the market, resulting in more absolute margin $. See hypothetical example:

11/ So we know fixed costs decline with volume. ✅

We also need to consider variable production costs.

$TSLA's new pricing agreement with Panasonic (effective April 1) surely helped here. Any cost savings on the battery can be passed on via a price cut (same for 3/S/X) cuts.

12/We also know that $TSLA plans to reduce variable production costs further later this year by using more casting.

$TSLA may have chosen to pass those savings on now and avoid another price cut in Q4.

13/ To conclude:

I think the price cut happened bc:

- Production/supply has or will improve significantly in the next 4 weeks
- $TSLA has chosen higher volume at the cost of GM%, in line with their corporate stategy
- $TSLA wants to inc. demand run-rate to keep inventory low

@threadreaderapp unroll

Wanted to add.

$TSLA exited Q2 making ~2.5k Model Ys/week. By end of Q3, they will be over 4k/week. I also expect demand run rate to grow over time organically as awareness increases with more Ys on the road.

WoM advertising + cars on the road = $TSLA sells more cars.