Decoding Tesla Pricing Strategies

How much will you pay for a new Tesla? Recently, the Tesla pricing strategy seems to be like spinning a wheel and hoping it will land on the lowest number.

Tesla does everything differently. Once you understand this, it’s a little easier to figure out what’s going on with pricing, purchasing, and the vehicle lineup. Tesla has never made gas-powered vehicles and has been a market leader in the electric vehicle boom. Additionally, this company doesn’t adhere to the traditional business model of using a franchise dealership network, so why would you expect them to adhere to traditional pricing strategies?

What is a traditional pricing strategy?

Typically, automakers advertise the MSRP (Manufacturer’s Suggested Retail Price) of vehicles in the fall when the new model year begins. Generally, these figures don’t change until the next model year, but that doesn’t stop dealerships from adjusting the prices based on demands. Dealers can easily add fees and call them what they want. Some Chevy dealers have added up to $5,000 in “market adjustment” fees to vehicles. What’s crazy about these fees is that some people pay them and don’t mind closing a deal that will cost them a lot more than they should be paying.

What’s different about Tesla?

The Tesla pricing strategy is as easy to pin down as nailing Jell-O to the wall. It’s not going to stick, and you’ll feel like you’re chasing your tail. That said, analysis compiled by Bloomberg shows that Tesla electric vehicles typically follow the average cost of similar new vehicles at any given time. When the Model 3 arrived in 2017, the average vehicle cost $34,944, and the Model 3 cost $35,000. Recently, this same car was priced at $46,990, while the average new vehicle cost was $47,692. This doesn’t sound much like a coincidence.

Instead of sticking to an MSRP and allowing a dealership network to tack on fees, Tesla controls the pricing strategy. They also don’t have a dealership network, so there’s that aspect of it. This has meant some Tesla models change prices several times over the course of a year.

The strategy was simpler in the previous decade

The early days of Tesla with the Model S and Model X allowed the company to adhere to a more traditional pricing structure. They would change prices in the middle of the year, but these changes often came with new features or performance upgrades. This seems to only have lasted a few years, from 2012 to 2016. Some of the upgrades could include more driving range in the base model or a discount for software features that were disabled on a particular vehicle.

Once the 2018 Tesla Model 3 arrived, the Tesla pricing strategy rules were out the window. The prices could change so often that you wouldn’t know from one week to the next how much you might pay for a Tesla. This angered some customers, but not enough to make Tesla change its ways.

Eventually, customers came to accept this pricing model

How do you get consumers to accept something outside the norm? You continue to do it and offer products they want to use and enjoy. Many drivers were ready to switch to Tesla vehicles, especially those looking for impressive tech features in their cars. This means living with the floating pricing strategy, lack of a dealership network, and the unique vehicle service system of Tesla.

Have other companies imitated Tesla’s pricing?

Although automakers set the MSRP of the vehicles they build, only dealerships can negotiate the final price. This, along with the Tesla pricing strategy, resulted in many dealerships charging thousands of dollars above the MSRP for many new electric vehicles. This led to many automakers creating new rules for their dealership networks. Ford issued an ultimatum that dealers had to agree to no-haggle pricing to sell future electric vehicles. Volvo announced that all EVs would be sold online at transparent, non-negotiable prices. This makes it easier for customers to understand what they will pay but takes some negotiating ammunition away from dealerships.

How much will you pay for a Tesla?

Although the Tesla pricing strategy is unpredictable and floats from month to month, the Model 3 and Model Y have been some of the most affordable electric vehicles in their respective classes for the last few months. This could put pressure on other automakers to adjust pricing and bring their costs down. It also means they won’t be able to add extra fees to new electric vehicles, especially since many customers are looking for better deals and the initial surge to EVs seems to be over.