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Tesla Microeconomic Analysis (3)

Tesla’s pricing strategy is very successful, considering it’s the most prominent company in its field of electric vehicles. Over the span of less than ten years, Tesla has grown from the creation of its first vehicle to amongst the biggest companies in the world. Tesla’s product is advertised as high quality and technologically advanced, and therefore charges a high price to its specific audience. This means that the company appeals most to those that are wealthier. Then, Tesla would lower its prices to capture more of the market.

Up until recently, this strategy has been extremely successful as Tesla had practically been one of the the only firms in the electric vehicle field. But, now that other brands such as Volkswagen and Hyundai-Kia are also in the competition, we see that Tesla’s success is slowly waning. This is because these other companies sell products with the same function for less- for example, the Volkswagen ID.4 is also an electric car, but as opposed to costing in the hundreds of thousands (such as the Model S, which has a maximum purchase price of around 152,000 dollars), the Volkswagen ID.4 starts at just around 37,000 dollars. Though these figures may not contain the additions that are contained in a Tesla vehicle, it is still significantly less money, which would allow them to appeal to more than just the wealthiest. To add to this, even the cheapest of Tesla’s models, the Model 3, starts at more than 40,000 dollars before extras. We can see a fall in the amount of vehicles sold by Tesla from the year 2021 to 2022- in 2021, around 945 thousand vehicles were sold, while in 2022, around 908 thousand were sold. (Tesla: Vehicle Sales by Quarter 2022) Though these numbers are still rather high, these statistics do show a decline in the popularity of Tesla’s products.

With that being said, I believe that Tesla should lower its prices more to capture even more of the market. The main reason Tesla has been declining slightly, as stated before, is that other competitors are now selling similar products for cheaper. Tesla’s prices, even after lowering them, still aren’t as attractive as those of competitors. Though Tesla is still thriving off of its past success allowing for consumers to believe that Tesla products are superior, over time, this will inevitably change as competitors gain more and more prominence in the market, overtaking it.

An interesting fact about Tesla is that it spends 0 dollars on advertising. This is very much unlike any other vehicle company, in which you would probably find an advertisement just by scrolling through the internet. Instead, the company chooses to spend its money on the research and development of cars. Still, Tesla is extremely successful, even though the quality of its product is spread only through oral message. (Auto industry will spend less on advertising in 2022; Tesla already spends $0) Because we have seen that Tesla is able to succeed without advertising, I believe that Tesla does not need to advertise. The company does plenty of marketing, of course- for example, it has implemented its cars as a feature in the popular video game PUBG as a means of publicity.


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