This week, Brad Erickson, an analyst at Pacific Crest Securities, published a research note in which he suggested that Tesla might be engaged in some discounting of vehicles in order to stoke deliveries for the third quarter and into the fourth.
The question of discounting must have been in the air, because in response to a seemingly unrelated inquiry from a Tesla customer, Musk tweeted on Wednesday about Tesla’s steadfast “no discounting on new models” policy and stressed that it was integral to the company’s future.
He even appended his email to Tesla employees to his tweet. In it he wrote that Tesla can never sell a factory-fresh car for less than full price, that he always pays full price when he buys a car, and that he would be personally reviewing every less-than-full-price delivery for the quarter.
In other words, Musk came in heavy on this issue.
But maybe he shouldn’t have.
Discounts aren’t evil
It’s understandable that he wants to squash any notion that Tesla is experiencing slippage in demand for its vehicles — this has for years been the number-one concern of analysts who follow the company. Musk, as he wrote in his email, also doesn’t want a customer thinking that someone else got a sweeter deal: “The acid test is that if you can’t explain to a customer who paid full price why another customer didn’t without being embarrassed, then it is not right. We either win in a way that is fair and right or we lose with our honour intact and accept the consequences.”
That’s a noble attitude and shows just how much respect Musk has for Tesla buyers, but discounting isn’t an aberrant practice in the auto industry. It isn’t necessary to make a 100% profit on every vehicle sold, either for the manufacturer or the dealer. And in some cases, it can be good for customer relations to sweeten the pot a bit.
True, this tends to take place at the dealer level, and Tesla doesn’t have dealers. In fact, Tesla is determined to do away with the dealer model, favouring direct sales and emulating a no-haggle pricing philosophy that historically consumers have said they want in the car-buying experience.
It’s clear where Musk stands in this matter, but as Tesla grows, it might have to make some concessions to owners who would like to pit one automaker against another for their business. Musk wants other car makers to start selling electric vehicles, and lots of them — that’s the only way he achieves his goal of getting humanity off fossil fuels faster.
Those car makers and their dealers aren’t going to be as noble as Musk when it comes to pricing. And no one is going to get angry at Tesla if they start to play this game. At least not angry enough to skip out on buying a car if they think it’s the best choice.
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