Tesla's average selling price has been increasing continually, it's the opposite of everyone
else's models and forecasts, where they have Teslas reduce in price to increase demand.
The thing is the demand is increasing whilst Tesla are raising prices.
Tesla is breaking the most fundamental element of economic theory, supply and demand.
The thing is not only have Tesla continued to raise prices on what some regard as already
expensive vehicles.
One of the other major things though is the compact, or $25,000 Tesla.
Even I was under the impression that this was going to be the mass selling vehicle.
I mean it was kind of the way we were told the direction of the company.
It was mainly thought that the compact Tesla would be the main robotaxi.
We thought this vehicle would be $25,000 and when you do the economics, it works out that
it's cheaper to own than taking the bus.
Everyone was going to be able to afford this vehicle, we expected it could have been as
high as potentially even 50% of passenger vehicle sales from Tesla.
Except there was a low price tag, and to get the vehicle price that low, it would also
sacrifice profits immensely.
I mean of course the profits will be lower
with a lower priced car, but the margins would also be lower, as it gets really tough to
hit such a low price point.
In other words, would this car would not only dramatically reduce Tesla's ASP, it would
also heavily effect the overall margin.
Just think about how difficult it is to make an electric car that small at lower cost.
When you make the same electronic items smaller, then usually it actually becomes more expensive.
In other words it's going to be so much effort to try and cram in all the same technology
as a Model 3, into a smaller compact version.
This would create massive complexity.
It would be a real challenge to create a Tesla compact.
Yes, sure BYD have the Dolphin, still not in volume production by the way.
Not sure if any those listeners are still with me who told me that would have been selling
all across Europe by now.
But Tesla don't make Dolphins, they make Teslas.
Teslas have to hit much higher standards, especially when it comes to safety.
Remember one of the other main objectives with Tesla is the reduction in driving fatalities.
Safety is a major concern to Elon.
He is trying to save lives.
The sheer physics of a smaller car is just never going to be as safe as a larger car.
This would add more to cost and complexity, along with more complications on the production
line, which is what matters the most.
How fast these cars can be produced in the first place, especially if this was to be
the biggest selling vehicle in history, of which we may have expected it to be just that.
But what does it matter though, Tesla will
have reached supply for the Model 3 and Model Y, and then they can move on to the compact
model and generate all the demand they need in the world, as almost anyone can afford
this $25,000 electric car.
Except by this stage, well Tesla may have already gotten the Model 3 down to about $35,000
adjusted for inflation.
Now even if it did start at $25,000, you can imagine it might be fairly basic, and most
people might end up spending a bit extra and taking it to $30,000.
I mean we are almost at the same price point here anyway.
Most people who can afford $30,000 can probably find a way of affording $35,000, especially
if they are coming from an ICE vehicle, and saving a fortune in running costs.
The $35,000 Model 3 would still have some decent margin, when compared to a $25,000
compact.
It would also be cannibalizing a far more profitable vehicle, that is already at an
affordable price.
Tesla didn't realize they were going to get
this much demand just from the Model Y.
They thought they needed to get something very low cost out to the masses.
Tesla no longer have to think about offering a low cost car to help the transition.
Their current cars are more popular than they can keep up with as it is.
The lower cost option for now, will simply be Robotaxis.
I mean I say low cost, as if the compact would
instantly cost less to make than a Model 3, but I doubt that would even be the case.
Tesla have spent years and years refining the production process for the Model 3, and
all other associated economies of scale with this vehicle, and the Model Y too.
It would take a long time to get the cost of a compact down to even the cost of a Model
3, and by the time they would have achieved that, then the Model 3 cost would have reduced
again.
And actually all these resources used in building the compact, could have instead been used
in reducing the cost of the Model 3, so in reality in becomes even longer to get the
cost of the compact down to the cost of a 3.
Yes, there is a massive opportunity cost in resources trying to get an electric vehicle
at such low cost.
The end game with vehicles for Tesla is Robotaxis
anyway.
A Model 3 or Y actually makes for a better Robotaxi.
I will do some updated Robotaxi figures soon, as I think it needs to be rethought, especially
since Tesla are pivoting, and showing more conviction in their confidence of achieving
FSD.
But Tesla need to get as many Robotaxis out as possible.
Tesla are battery constrained, so it could be argued that a compact version may free
up more batteries, due to it being smaller.
But perhaps a compact Tesla has less applications available for Robotaxis.
It would be less comfortable, of course less safe, and would add to complexity of there
being additional models available in the Robotaxi network.
Ok fine, enough reasons to explain why it
makes sense for Tesla not to offer a lower cost model, at least not any time soon, and
if they ever offer a compact, I don't expect it to be the model that has the highest volume
in production.
I think that is going to be the Model Y and Model 3, purely for Robotaxis.
But this means that so many projections are wrong.
In fact everyone's I have seen.
I think all of them have their ASPs reducing significantly, in the expectation of some
lower cost vehicle.
Or they just don't seem to get their heads around the fact that Tesla doesn't need to
lower the selling price, to get the demand you think.
They just need to lower the cost of ownership.
All Tesla need to do to increase demand is explain to consumers how much a Tesla actually
costs to own, and then offer new alternatives to financing.
Perhaps finance the car over 10 years, thus reducing the payments, to be more in line
with the amount you would spend each month at the gas pump.
I mean I would say it likely that prices of
Tesla's will reduce, but it's possible they may not.
They could increase, and keep increasing, because they are so valuable.
So very, very valuable, and perhaps just about an order of magnitude more valuable if they
have FSD, or can enter a Robotaxi network.
There do not seem to be any reasons yet for Tesla to actually lower prices, or offer more
affordable models.
The demand for Teslas still appears to be growing more than the supply.
The free market has the ability to alter pricing in order to control demand.
I am not sure these prices will come down.
But possibly some lower cost models like a Stanard Range plus Model Y within time.
Instead, Tesla can just add more and more value to each car.
The more value Tesla adds then the more demand increases.
FSD is obviously the main one we are all thinking about.
Which also continues to increase in price along with the vehicles.
This means that everyones, and I mean everyones
price targets, forecasts, projections and valuations for Tesla are simply wrong.
They are all doing models on Tesla's vehicles reducing in price.
Which does make sense, it is axiomatic to assume to get more demand you need lower prirces,
accept Tesla doesn't seem to even follow a traditional supply and demand curve.
It is something totally unique, and unprecedented.
Even ARK for their bull case in 2025, has Tesla's ASP down as low as $36,000, I mean
in case you didn't now, that entire price target is an abomination and shows that ARK
has certainly lost their ways, which is a shame, as Cathie Wood was a great spokesperson
for Tesla.
But the craziest part is that whilst these prices are increasing, the costs are decreasing,
at least all adjusted for inflation.
And Tesla's costs are definitely dropping more relative to the equivalent competition
anyway.
I am pretty sure FSD will come into fruition,
whether it takes 2 more years or 5 more years, and when it does, then obviously adoption
percentage will increase, the price will increase and there will be no more deferred revenue.
Probably adding a further $15 to 20,000 gross profit per vehicle sold.
Compared to just about $1,000 extra added on to each vehicle now.
That is a massive increase too.
Therefore it is highly possible that ASPs will be quite a bit higher in the future,
and this all goes straight into gross profit.
Perhaps we should do some more financials
and see what happens if Tesla can continue to raise prices, whilst also raising demand.
This sure feels like a good company to be invested in.
We just need to make sure that Tesla really can make as many batteries as they say.