Tesla's China Trouble: Angry Consumers and the Reasons behind the Price Reduction!

March 28, 2019

As a matter of fact, Tesla's price reduction measures for the whole series of cars reached a maximum of 3411,000 yuan, the original price of Model X P100D of 118,930,000 yuan, with the adjusted price of only 848,200 yuan, followed by Model S P100D, which dropped from 1.091 million yuan to 8.135 million yuan.



On February 28, Mr. Liao, a restaurant investor in Changsha, excitedly posted Model X on his microblog for just three days, but one day later, he completely changed his attitude. On March 1, Tesla officially announced that Mr. Liao spent 10.411 million yuan on Model X 100D, and the price of bare cars dropped from 952,500 yuan to 778,200 yuan, with a price reduction of 174,300 yuan.


Mr. Liao said that maybe his income was higher than that of the ordinary working class, but his car purchase money was also earned through hard work and legitimacy. In addition to tariffs, purchase taxes, bank interest and insurance fees affected by price reduction, the actual losses exceed 200,000 yuan. So Mr. Liao pulled up a banner in front of Tesla's store: "Tesla lowers prices at will, infringing on consumers'rights and interests" in protest, hoping to compensate such owners. But local stores or Tesla officials did not respond to their demands.


Despite the price reduction strategy, Tesla launched the "Confidence Guarantee Program", which allows consumers to return their vehicles within 7 days of delivery or 1600 kilometers of driving and get full payment. Tesla has also promised to deliver full-automatic driving at half the price, saving up to $6,000. These do not seem to meet the demands of existing Tesla Chinese owners.


As a result, more and more old Tesla owners are starting to stand in opposition to the new energy car company and its founder, Ilon Musk. They began to be dissatisfied with Tesla's simple and crude price reduction strategy, evolved to zero tolerance of problems such as car noise and water leakage, and even began to doubt Musk himself, who worshipped Tesla products.



In addition to lowering global product prices, Tesla also announced a full transformation of online sales, of course, the biggest news is that another model Y is about to be released, all in order to reverse the company's long-term loss situation.


In China, Tesla's first task is to calm the hearts of existing Chinese Sla owners before it gets good news about building factories in Shanghai and getting a $2 billion loan from a Chinese bank.


Chaos is not just about price cuts, it's about pick-up order.


This is not the first time that Tesla has cut its price on a large scale. According to Tencent's Potential, Tesla has made four price cuts since November 2018.


In addition to the price reduction of the whole system, the first one occurred in late November 2018, when the price of eight models of Tesla dropped by 8.1% - 25.94%. The second one occurred in mid-December 2018, when the price of three models of Tesla Model S and Model X dropped by 5.19% - 11.00%. The third one occurred in late December 2018, when the price of two models of Tesla Model 3 dropped by 5.9% - 7.6%.


In addition to continuing price cuts that dissatisfied some of Tesla's loyal fans, there was also a disorderly delivery time for Tesla. Under the guidance of Tesla's sales staff, Ms. Zhao in Beijing paid a deposit of 8,000 yuan in 2016 to book a Model 3, but the delivery of her single vehicle is still far away, although the Model 3 has begun its official delivery in mainland China on February 22.


On March 31, 2016, Tesla first began accepting Model 3 reservations in mainland China, with a deposit of 8,000 yuan. Tesla said at the time, "For the sake of fairness, each country or region will have its own order of reservations. At the same time, to thank the existing owners, Tesla owners will have priority.


"The explanations given to me by sales have been changing, from the limited capacity of Model 3 at the earliest stage to the recent one that the configuration I chose was not standard configuration, and the customized parts need to be extended production cycle." Ms. Zhao told Tencent's Potential that one of her colleagues booked a standard Modal 3 at the end of 2018, notifying that it would be ready for pick-up in March this year.


What makes Ms. Zhao angry is not only that she has waited for more than three years, but that her colleagues have waited for only two months. More importantly, her car purchase price is close to 600,000 yuan, while her colleagues only have more than 400,000 yuan. She joked at herself. "I'm sorry to tell others that I'm afraid they'll think of me as a fool."


After the price reduction, Ms. Zhao chose Model 3's 600,000 yuan car price that year, and she can buy a higher configuration of Model S. She also tried to communicate with salespeople whether she could return Model 3 and buy an earlier and cheaper back-end version of Model 3, but got the negative answer.


The contradiction is that if the "confidence assurance plan" promises no reason to return the goods within 7 days or 100 kilometers, then even after delivery, Ms. Zhao can return the goods. Now, due to the unreachable delivery time, the failure to return the existing orders and reserve them has reduced the consumer experience.


Increasing Sales and Reducing Costs to Meet Urgent Profit Demand


With Tesla's All-car price cut and the launch of the standard version of Model 3, which sells for only $35,000, Tesla also announced that it would switch to online sales worldwide. According to Tesla, North American consumers can buy Tesla in one minute by mobile phone, and the function will soon be extended to the global market.


At the same time, in the coming months, Tesla will close many of its stores in the form of booths, exhibition features and Tesla Information Center in high passenger flow areas. Tesla said it would continue to increase investment in service systems and networks, such as providing more door-to-door services or meeting customer service needs within 24 hours or even 1 hour.


In order to reduce the cost of the test drive experience that consumers must have before making a purchase decision, Tesla promised to return the vehicle within 7 days or 1600 kilometers, and Tesla offered a full refund. Combining all online sales with other ongoing cost-efficiency initiatives, Tesla believes that the average price reduction for all vehicles is about 6%, which is conducive to the earlier launch of the $35,000 Model 3 benchmark.


Tesla has long suffered from unprofitability. According to Tesla's 2008 earnings report, Tesla's revenue in fiscal year 2018 was $21.461 billion, an increase of 83% compared with $11.759 billion in 2017. However, Tesla is still unable to reverse long-term losses. In 2018, the net profit attributable to shareholders of listed companies remained negative -- $976 million in losses. The main reason for the loss is that Tesla's revenue cost and operating expenses increased in 2018, especially in terms of automobile sales, which increased by 104%.


Of course, price cuts have also been seen by many as a strategic price adjustment by Tesla for the upcoming SUV new model Y to help Musk chasers buy cheaper models more rationally, rather than expecting Model Y, but again and again delaying the delivery of Model 3. According to Musk on social media, Model Y, which will appear on March 14, has 10% more space and 10% more price than Model 3, and has a slightly lower mileage than Model 3 with the same battery capacity.



Of course, there is no shortage of Musk's "loyal fans". Mr. Tang, a private entrepreneur in Beijing, is the owner of China's indigenous brand of new energy vehicles. He tried to persuade friends who wanted to buy Tesla Model 3 to become the owner of Ulai. The other side insisted that the purchase of Model 3 be delivered in April. Mr. Tang also made fun of him after the price reduction strategy was announced, but the other party's feedback to Mr. Tang was "not concerned". Maybe he really doesn't care.