For several years now, there have been repeated reports about how Tesla is superior to established car manufacturers in terms of the technologies used in its vehicles. For example, Tesla should be able to react much faster to new standards, such as smart charging or autonomous driving functions, with its models simply because of their design - other manufacturers would first have to design new, specially tailored models for this. But it is not only in this respect that Tesla seems to be ahead of its competitors. After all, the recent drop in prices at the electric car manufacturer is certainly no coincidence, but a planned element of an aggressive pricing policy with which Tesla wants to bring a high number of its models to market even in a difficult market environment. However, this strategy is only possible because Tesla has been working with high margins for years, which it can now use to give its competitors a run for their money in the battle for market share.
Price War For Electric Cars Has Begun
According to a Reuters article, Tesla is using its high profits as a safeguard in the price war for dominance in building electric cars. According to the article, CEO Elon Musk has now begun to target his company's superior profitability to boost his company's sales. In fact, this stratagem is probably not due to Musk alone, but rather to a strongly changing competitive environment. After all, the estimated order backlogs at Tesla continued to decline, especially in the second half of 2022. In the long run, the situation would lead to a reduction in pre-orders and ultimately to overproduction, which the automaker - like any other company - would like to avoid.
So the question is likely to have been how sales can be increased again in the short and medium term in order to avoid Tesla going into economic difficulties. Established manufacturers have so far tended to implement austerity programs and other spending cuts in such situations. As it now turns out, however, Tesla still has a weapon up its sleeve in this area, which it can now bring to bear to ensure the company's continued success.
Enormous Profitability Creates Competitive Advantage
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To get closer to this weapon, the profitability data presented by Reuters are particularly relevant. According to this data, Tesla manages to earn several times more per vehicle than established industry giants such as Volkswagen or Toyota. Compared to Volkswagen, it is twice as much per car, and compared to Toyota, it is even four times as much, which corresponds to an enormous lead of the company in terms of profitability. This advantage is probably due to direct sales without dealers, but on the other hand, it can be attributed to lower production costs in general.
So in this situation, it is now comparatively easy for Tesla to lower its margin per vehicle and thus influence competition in its favor. After all, the lead over Volkswagen or Toyota is so large that Tesla is still likely to earn higher margins than the established industry giants despite its aggressive pricing policy. Of course, customers in particular benefit from the lower prices and can now get their new cars at a much lower price. It remains to be seen how the competitive environment will react to Tesla's strategy. But one thing is certain - it has one less weapon than Tesla.