Since the start of the year, Tesla has massively cut vehicle prices resulting in the EV maker’s automotive gross margin going down from an industry-leading 32.9% down to a run-of-the-meal 18.7%.
This has concerned Tesla investors who believe that the EV maker should change its strategy of aggressively cutting vehicle prices. The investors believe Tesla should increase advertising to gain market share rather than cut prices.
Musk’s argument against advertising for the longest time has been, that there is a lot of interest in purchasing Tesla vehicles however, Teslas are not affordable enough for most people.
Due to this belief, Musk has concentrated Tesla’s efforts on cutting vehicle prices rather than other strategies directed at generating increased demand such as advertising.
Musk believes even if advertising increases people’s interest in purchasing a Tesla, it would still not matter if they can not afford the vehicle. Musk says that this is especially the case in the current high-interest environment that has pushed interest on monthly payments for vehicles to 9.5 percent.
The Tesla CEO even adds that an internal investigation by Tesla has found that, even though the EV maker has cut prices by as much as 25% since the start of the year, due to high financing costs and interests, monthly payments for Tesla vehicles have stayed basically flat.
In order to address this issue, Tesla has been working tirelessly to decrease the cost of goods sold on every vehicle, and in the latest quarter, the EV maker announced that the average cost to produce a Tesla vehicle has gone down to a record $37,500.
The EV maker has also said that it has implemented several factory upgrades and product refreshes that should further decrease the cost of goods per vehicle sold in the coming few quarters.
In my opinion, this is a superior strategy to address the issue of demand for Tesla vehicles. However, some prominent voices in the Tesla universe have been strongly pushing the EV maker to adopt advertising to increase sales.
Calls from this faction of the Tesla investor group were so loud that at the company’s Investor Day held back in March 2023, Elon Musk announced that Tesla would be paying for advertisement for the first time in the company’s history.
Since March, we’ve seen Tesla ads pop up on several platforms online and offline, however, the price cuts have only accelerated with the Tesla Model 3 & Model Y now at their lowest starting price since the vehicles’ introduction.
Last week, Tesla also held a bearish earnings call which saw Elon Musk’s net worth and Tesla’s market cap decrease by $15 billion and $120 billion respectively. During this restrained earnings call Elon Musk suggested that the EV maker will be continuing price cuts and holding off on major expansion plans until there is a stop in interest rate hikes.
This has once again reignited demand concerns and calls by Tesla investors for the EV maker to ramp up advertising. One such Tesla investor, James Stephenson wrote on X saying that even though Tesla builds vehicles that people love and is cutting costs, the EV maker can not grow sales if “awareness” is low.
Stephenson then shared a study conducted by Drive Tesla Canada which concluded that “80% of Americans surveyed were unaware of how affordable Teslas are today.” Stephenson concluded his post by stating that by advertising Tesla will be able to educate a wider audience on the affordability of the EV maker’s vehicles.
In response to James’ post Musk wrote on X: “I said we would advertise. We are doing so at a small scale and will do so at a larger scale as we figure what works best.”
I said we would advertise. We are doing so at small scale and will do so at larger scale as we figure what works best.
— Elon Musk (@elonmusk) October 23, 2023
Musk’s response, including his recent change of heart regarding advertising, seems more of a begrudging defeat rather than a wholehearted embrace of the idea of advertising.
Having said that, if several prominent Tesla investors, who are financially invested in Tesla’s success, are calling for the EV maker to advertise, it might be wise for Tesla to do so and check whether there is any merit in their advice.
Currently, despite saying that Tesla will be doing a large-scale ad campaign, Musk has not given any details on how much the EV maker is planning to spend or what the nature of the ad campaign will be.
However, we’ll be sure to keep you posted as Tesla ventures into the advertising world. Until then, make sure to visit our site torquenews.com/Tesla regularly for the latest updates.
So what do you think? Excited to learn that Tesla planning a large-scale advertising campaign? Also, do you think this will meaningfully increase demand for Tesla vehicles? Let me know your thoughts in the comments below.
Image: Courtesy of Tesla, Inc.
For more information check out: Breaking: Tesla Begins Delivering Refreshed Model 3+ in Europe
Tinsae Aregay has been following Tesla and The evolution of the EV space on a daily basis for several years. He covers everything about Tesla from the cars to Elon Musk, the energy business, and autonomy. Follow Tinsae on Twitter at @TinsaeAregay for daily Tesla news.