1. From Genius Premium to An Asshole Tax.tl;dr: Tesla slashes prices. Elon Musk was recognized by the Guinness World Records this week for losing more money than any other person in history. His fortune is estimated to have dropped by $180bn-$200bn since mid-2021. Indeed, as I’ve watched his personal brand disintegrate from Steve-Jobs-like-genius to cruel-narcissistic-whinger, I’ve wondered what the impact would be at Twitter (just about hanging on by its fingertips as costs and revenue are slashed to the bone), and at Tesla, where the brand is more intimately connected to it’s CEO than pretty much any other company on earth. And I guess now we know. The impact on Tesla is a 20% Asshole Tax payable directly to the consumer. That’s because this is roughly how much Tesla slashed the cost of its cars by, bringing the Model Y from $65k to $53k, which also makes it eligible for federal subsidies, meaning that for some buyers, a Tesla Model Y went from $65k to $45k, overnight. I can’t tell you how huge a decision this is. Generally speaking, automotive companies do everything in their power to avoid such extreme pricing moves because it has significant 2nd order effects on the used market and creates negative goodwill among existing owners, whose vehicles are now worth a lot less money. And while there’s been plenty of discussion around the impact of Musk becoming a darling of the far right on Tesla sales, my view has always been that any negativity is probably less about his politics specifically and more the general sense of narcissistic assholery that’s been on display (excuse the language, but I can’t think of a better, more accurate, description). Anecdotally, while my left-leaning friends find Musk universally odious, right-leaning friends and family tell me they like what he’s doing at Twitter vis a vis “free speech,” but not how appallingly he treated the Twitter employees he let go, which is now making them question whether they’d buy a Tesla. (But, to be fair, my right-leaning friends are more likely to aspire to a fume-spewing coal-roller anyway). And that’s the thing. There’s probably no single act, political or otherwise, from Musk that’s problematic for Tesla sales. Instead, it’s more likely that his general behavior has shifted Tesla from something cool to something, well, not so cool. My guess is that whatever impact Musk is having, it’s primarily manifesting through a lens of consumers choosing to consider other EVs rather than reflexively defaulting to Tesla. And that any broader slowdown in Tesla sales is likely an impossible-to-untangle combination of high-interest rates, softening demand, increasing competition, and loss of reputation due to having a very public asshole as CEO. So, with that in mind, how should Tesla respond to a cooling market? Well, although I did have a laugh with my headline, dropping prices actually represent a bold strategic move, possibly a canny one. Let’s take a quick look at why. First, to halt its stock price slide, Tesla, more than any other car manufacturer, has to demonstrate strong unit sales growth. Otherwise, the stock remains vastly over-valued, even after a steep drop from its peak. (Almost certainly, this is why Tesla pulled out some weird Q4 sales shenanigans with Hertz to boost end-of-year sales) Second, Tesla only has limited levers to pull. Its models are increasingly long-in-the-tooth in what’s become a highly innovative category. Competitors have superior build quality, interior ergonomics, exterior design, and after-sales service. And the cyber-truck, which looks ridiculous, is also ridiculously late to market, where it’ll be the 4th or 5th light truck entrant, even though it was announced years ago. There’s no way I see it eating into F150 Lightning sales anytime soon (assuming you can get an F150 Lightning). Third, with court cases underway and federal investigations ramping up, it’s likely that Tesla is trying to get ahead of bad news related to its Autopilot and Full Self Driving capabilities. By all accounts, the most likely outcome of these cases doesn’t look good for either Musk or Tesla. Fourth, even with the above headwinds, Tesla has three advantages over its competition. First, it doesn’t have the same cost pressures because it isn’t managing an internal combustion engine business for decline while at the same time getting an EV business up and running. Second, it has reportedly signed advantageous agreements for raw materials that give it a cost and access advantage. Third, it doesn’t have a dealer network to worry about and thus doesn’t face the same pressure to maintain used prices, even if it is taking a big risk in pissing off existing customers. Whenever a company decides to set a new price floor in a market, it’s betting that it can change the competitive dynamics, force the competition to react, and either follow suit or accept lower sales because of now “too-high” prices. And that’s what Tesla is doing here. It’s betting that it can set a new price floor where any decrease in profitability will be more than offset by increases in sales volume while also betting it will gain incremental share rather than benefit solely from “demand pulled forward,” where people who’d have bought a Tesla anyway buy one sooner than they otherwise would’ve. So if Q1 sales spike and then recede in Q2/3, then it’ll have been demand pulled forward. However, if they spike in Q1 and growth stays robust through the rest of the year, then Tesla will have effectively reset the demand curve for its products. And if that happens, then pricing pressure will no doubt be an ongoing feature of the EV market as competitors are forced to follow suit. It’s by no means guaranteed to be successful and represents a hugely risky strategic choice (a global brand campaign, by contrast, would’ve been much cheaper and potentially similarly effective). But, it’s also apparent that Tesla, maneuvering from a position of weakness, hasn’t left itself with many other choices. It simply has to be a volume leader to justify its stock price. It badly stumbled on the innovation front, allowing its models to get old to the point that it lost the EV PR battle, and it still hasn’t figured out manufacturing quality. And, finally, by having a brand that’s so intimately associated with its CEO, it lacks the independence to survive his shenanigans unscathed. And, all the while, competition has become increasingly fierce. For consumers, lower prices for EVs are unambiguously good, and we’ll see if other automotive manufacturers follow suit. It’s a bold strategic move, and it’ll be interesting to see if a 20% Asshole Tax payable to the consumer helps overcome any queasiness at driving a MuskMobile. My experience is that people generally get over queasiness pretty quickly once prices get low enough. It’s certainly an interesting time to be a Tesla stockholder, that’s for sure. In the meantime, if you’re a used car dealer sitting on a load of expensively purchased Tesla inventory. I’m sorry.
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