Why is Tesla dropping again and again?



Tesla has become the "price butcher" again.


  A confirmed email shows that from September 16th to 30th, Tesla owners who pick up a Model Y or Model 3 can get a subsidy of 8,000 yuan if they buy insurance in the store.


  Taking the guide price of 279,900 yuan for the rear-wheel drive version of the Model 3 as an example, the price is 271,900 yuan after including insurance subsidies.


  What is different from the past is that so far, almost no rival car companies have followed suit to cut vehicle prices.


  Compared with its competitors, Tesla's ability to cut prices lies in its different business strategies and different ways of playing. Even if the price is reduced, the gross profit margin can still be maintained.


  Zhang Ming, who works for a leading "new force in car manufacturing", said that domestic car companies have low gross profit margins, weak bargaining power with suppliers, and profit models cannot support price cuts, so it is difficult to follow up.


  "(Reducing prices) is the norm for Tesla", Tesla can make money by selling software. In addition, Tesla's ability to continue to reduce costs has also made it difficult for other car companies to match - in addition to the cost-reduction effect brought about by the self-research of core components, it also includes the ability to "cut" costs from daily operations, such as Tesla. Pull never buys commercials in the media.


  Tesla doesn't make money off 'hardware'


  According to the semi-annual report, Tesla’s profit per vehicle exceeded $10,000, and it still held more than $18 billion in cash or cash equivalents, while its debt fell below $100 million.


  Behind these data, Tesla's gross profit margin in Q1 this year has reached 32.9%.


  Li Hao, an automotive analyst, believes that the reason why Tesla can continue to reduce costs lies in its core (component) self-research model, such as the realization of pure visual autonomous driving through artificial intelligence, "This can reduce the cost of sensors a lot. ".


  According to the discovery that CITIC Securities spent 2 months dismantling the Model 3, Tesla has mastered core technologies in core components such as autonomous driving chips, 4680 large module batteries, and integrated die-casting of the body.


  This makes Tesla completely different from most of its competitors, which need to source chips from chip giants such as Nvidia and Qualcomm, and even buy self-driving systems from third-party technology companies.


  Economies of scale also drive cost reductions —Tesla has built more than 3 million vehicles globally, including more than 1 million at its Shanghai Gigafactory.


  According to research by Shenwan Hongyuan Securities, Tesla's gross profit margin was -2.0% in Q1 in 2018, and became 17.6% in Q3, because the amortization cost was reduced after production capacity ramped up.


  Corresponding to Tesla's scale effect, "Weixiaoli" only delivered 100,000 units last year, and they are still in the stage of losing money selling cars.


  In addition, Tesla's business model is also significantly different from most car companies. Tesla's operating strategy is not focused on making money from hardware.


  Tesla launched the FSD system (Full Self-Driving System) in 2015, priced at $2,500 at the time, and after several price hikes, the current price is $15,000 (North America).


  But Musk believes the price of the FSD system remains "absurdly low," saying it could rise to $100,000.


  Tesla’s 2021 financial report shows that its business, including self-driving software, has achieved revenue of more than $3.8 billion.


  A report by Morgan Stanley analysts last year suggested that by the end of the 2020s, Tesla's revenue from software sales will exceed revenue from hardware businesses such as cars.


  In new car companies, the intelligent driving systems of brands such as Xiaopeng and Ideal are generally provided to users for free, which makes them unable to obtain the benefits brought by user subscriptions.


  Zhang Ming, who works for the "new force in car manufacturing", said that BYD also engages in vertical integration of parts and components, and has bargaining power with suppliers. The sales of cars are also good, but the gross profit margin is not high (13.5% in the first half of the year). "The profit model is very large. To a certain extent, it still stays at the level of selling cars.”

What sets Tesla apart from other car companies is that it never advertises.


  According to public information, from January to July this year, the global auto advertising business expenditure was 4.8 billion US dollars, and Tesla did not spend a penny.

  On the contrary, car giants such as Toyota have spent a lot of money on bicycle advertising.

  Musk said that advertising is marketing, and he prefers to put money into product development.


  In addition to not advertising, Tesla's cost reduction is also reflected in the daily operation level. One of the most prominent points is that, unlike most car companies, Tesla hardly holds press conferences. Sometimes Tesla may hold a delivery ceremony, but it will choose to be in the factory.


  At present, Chinese car companies also use the press conference as the main way of brand communication. For example, when NIO held the first NIO Day, it was said to have spent 80 million yuan - 8 chartered flights, 60 high-speed train carriages, and a number of five-star hotels to receive users and media.

  Tesla did not even attend the Chengdu Auto Show at the end of August this year.


  According to the "2017 Shanghai Auto Show Exhibition Proposal", the indoor standard booth price of domestic exhibitors is 1,800 yuan/, so 500 square meters is 900,000 yuan, and this does not include various expenses such as construction, vehicle transportation, and staff.


  But Tesla did not completely exclude such large-scale events, and participated in the service trade fair this year.


  Li Hao, an auto analyst, said that the cost reduction of enterprises is actually a little bit of digging out.

  Musk's cost-cutting plan included a scrutiny of every expense -- as long as it wasn't necessary to sell and deliver vehicles -- when Tesla hit a financial crunch in 2019.


  This use of funds may also carry over into all aspects of day-to-day operations.


  In 2019, the PR personnel of Tesla China once said that the time for the media to experience the test drive of the Model 3 was 3 days - at that time, the test drive time provided by most car companies to the media was 5 days.

Bai Yiyang from the research department of CMB International believes that it is difficult for Chinese car companies to catch up with Tesla.


  He pointed out that Tesla already has a technology and brand moat, as well as the ability to continue to reduce costs, and "can continuously improve the localization rate and production process."

  In addition to the "software-defined car" business model, Tesla continues to optimize its production process, including increasing the localization rate, so that its costs can continue to decline. At present, the localization rate of domestic Tesla has exceeded 95%.


  This allows Tesla to maintain a high gross profit margin even if it sells at a lower price.

  He said that most car companies can only achieve flexible production (production lines), but Tesla has achieved optimization and cost reduction in the production process.

  Xu Lide, the former assistant to the president of Bojun Automobile and a supply chain expert, said that Chinese car companies are currently unable to catch up with Tesla's ability to continuously reduce costs, mainly because of two points: First, Tesla is a global layout, and Chinese car companies are currently unable to achieve This point; the second is Tesla's strong supply chain planning capabilities.


  In his view, the ideal state of the supply chain is that the supplier's production capacity, quality, process and other indicators can match the needs of the OEM.


  "When the OEM's demand is too small and the gap with the supplier's capacity scale is too large, there is no bargaining power (in terms of procurement), and vice versa."


  Tesla can provide huge demand, and of course it has greater bargaining power, "including quality, craftsmanship, materials, price and logistics cycle, etc."


  According to public information, when Tesla announced the construction of a new Gigafactory in Berlin, Germany, the battery giant CATL also landed its first overseas factory in Erfurt, central Germany - the former is one of the latter's key customers.


  This means that Tesla has a huge appeal for suppliers.


  New car "quantify life and death"


  Lin Ming, who used to be a technical expert at PSA (Peugeot Citroen Group, now Stellantis) and has a lot of research on new energy vehicles, believes that the core reason for Tesla's price cut is its eagerness to expand its sales volume, because "determining life and death" .


  He said that from the perspective of the supply chain, Tesla has not achieved the level of penetration and control of the entire industry chain at the level of BYD. The safest choice in this case is to quickly expand the scale, and then gradually strengthen similar The penetration rate of batteries and other fields.


  When the scale swells, Tesla will be regarded as a mainstream customer, and the applied technology can even become an industry standard, which will give it stronger bargaining power.


  At this point, suppliers are even willing to use ultra-low prices or losses to support Tesla, because with Tesla's huge demand for endorsement, they can get orders from other car companies.


  "As long as Tesla makes enough volume, it can get a lower purchase price than all its competitors."


  He took 21700 cells as an example. The minimum quotations of some large power battery suppliers at home and abroad for car companies completely fail to meet Tesla's requirements and may be at least 20% more expensive than Tesla's (purchasing) cost.


  "This is very scary," Lin Ming believes. This shows that as Tesla's supporting companies, these suppliers are willing to supply at ultra-low prices, "because they know that Tesla can support that amount."


  Tesla has used this advantage of scale to secure ultra-low offers not enjoyed by its competitors, which is enough to protect profit margins.


  Lin Ming finally emphasized that the advantage of scale is not only reflected in cost reduction, but is also crucial to the formation of standards (for the electric vehicle industry).


  "So, after achieving a certain level of leadership in technology, Tesla is not very urgent for the rapid return of the capital market compared to the rapid expansion of the user scale."


  (Note: Zhang Ming and Li Hao in the text are all pseudonyms.)

SOURCE : China news

(Disclaimer: This article only represents the author's point of view and does not represent the position of trendcable.com.)

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