Tesla brings the new Model 3 to the market. Are domestic car companies ready?

Before launching the Model 3 this year, Tesla spent nearly half a year reducing prices to maintain sales, as if it had become the instigator of a price war in the new energy vehicle market.

On September 1st, Tesla officially released the refreshed version of the Model 3 to prove that it has more than just price reductions up its sleeve.

A successful popular product naturally requires years of refinement, but it is quite rare in the automotive industry for a car product to remain unchanged for six years. Tesla currently only has four models on sale, and they become instant hits with their focused strategies.

Therefore, each model is crucial for the Tesla brand. Can the new Model 3 make a breakthrough and reach new heights?

1. Expected changes, unexpected price increase

News about the updated Model 3 has been circulating since the beginning of the year. Finally, in September, the news was confirmed, but the expected price reduction did not materialize.

The refreshed rear-wheel-drive Model 3, which will be delivered in the fourth quarter, is priced at 259,900 yuan, which is nearly 30,000 yuan more expensive than the previous version. This pricing is far from the expected price of 200,000 yuan, and it deviates greatly from Tesla's price reduction strategy to maintain sales this year.

Usually, when an old model of a new energy vehicle is updated, it will undergo a price reduction to drive sales growth. Taking BYD as an example, this year they introduced more than ten updated versions of their Dynasty series old models. Except for some high-end models of the Song PLUS DMI and EV, which are priced higher than the old models, the rest have seen a price reduction of about 16,000 yuan.

Tesla, on the other hand, increased the price instead of reducing it. Jiemian Research believes that the main purpose is to quickly deplete the inventory of the old Model 3.

Globally, the production of Tesla Model 3 and Model Y has exceeded sales by about 78,000 units in the past year. If the price of the new Model 3 is lower than that of the old model, consumers who are already tired of the old design will completely shift their preference to the new model, and there may even be cancellations of orders for the old model. This is obviously detrimental to inventory management.

Therefore, Tesla may not necessarily avoid price reductions, but rather, it is using the high pricing of the new model to deplete the inventory of the old model. Before the deliveries in the fourth quarter, they will reduce the price difference to clear the inventory. Once the new model starts stable deliveries, they may consider offering price discounts.

2. Model 3, which has not been updated for six years, is experiencing a decline in sales

A successful popular product naturally requires years of refinement, but it is quite rare for a car product to remain unchanged for six years.

In April 2016, Tesla released the Model 3. The Model 3 reached its peak as soon as it was launched, becoming Tesla's first hit model in history. It has maintained this peak status for many years, and the only thing that can limit its sales is production capacity. But even the most outstanding car products cannot resist the law of product cycles. As the replacement cycle for consumers approaches, the novelty of Model 3 naturally diminishes for existing car owners. Tesla Model 3 experienced a year-on-year decline in sales growth for the first time last year, with a total global sales volume of 482,000 units, a 3% decrease compared to the previous year. In the face of fierce competition, sales in the Chinese market also declined by 17% to 125,000 units.

Even compared to another popular model, Model Y, there is a significant gap. The sales volume of Model Y in China is already twice that of Model 3.

Therefore, Tesla has no choice but to introduce a redesigned Model 3.

2. Lowering prices is not a long-term solution; a redesign is necessary to boost sales.

Frequent price reductions to maintain sales growth is not a sustainable strategy for Tesla, especially when these price reductions have already had a noticeable impact on profit levels.

In the second quarter of this year, Tesla's automotive revenue maintained positive growth, but both automotive business profit and gross margin have declined for five consecutive quarters, with the gross margin falling below 20% to 19.2%.

Tesla has indeed pursued a relatively focused strategic path. Compared to competitors with multiple models (such as BYD and Volkswagen), Tesla chooses to concentrate its resources on a few models. This strategy has several advantages:

1. Resource concentration: Focusing on a few models means that more resources can be allocated to research, development, production, and marketing, thereby improving the overall quality of the products.

2. Brand influence: A few models are also easier to establish a strong brand influence. A successful model can not only drive sales but also have a positive impact on the entire brand.

3. Rapid market response: Due to a relatively simple product line, Tesla can respond to market changes more quickly, including updating and upgrading models.

4. Cost control: Fewer models mean lower production and storage costs, which helps Tesla maintain a higher profit margin.

However, this strategy also has its limitations. As the new energy vehicle market matures and competition intensifies, relying on a few models may expose Tesla to greater market risks. Therefore, updating and upgrading old models to regain market and consumer attention is indeed a viable approach. This can not only boost sales but also maintain Tesla's leading position in the market.

In terms of specifics, model updates and upgrades mainly include annual updates and mid-cycle refreshes.

Annual updates mainly focus on minor design or configuration adjustments, as is often done by luxury car brands like BMW and Mercedes-Benz. This approach can continuously attract consumers who have a strong preference for the latest models, while also allowing for quick adjustments based on market feedback.

Mid-cycle refreshes, on the other hand, are more like a "reboot" aimed at attracting more consumer attention through a broader range of updates and addressing significant issues that may arise during the product lifecycle. This is exactly the case with the mid-cycle refresh of Tesla's Model 3. Through comprehensive updates, not only is the product itself improved, but it also helps maintain or increase market share. Tesla Model 3 has maintained high sales for 6 years without a mid-term facelift, which indeed demonstrates strong market competitiveness and showcases the strength of its brand and product quality.

However, the domestic new energy vehicle market in China now has several strong competitors, such as BYD Han, NIO ET5, and XPeng P7. These models not only have competitive prices but also significant improvements in technology, features, and brand recognition, putting increasing pressure on Tesla.

This pressure may prompt Tesla to pay more attention to product updates in the future and drive them to seek breakthroughs in market strategies and services.

Earlier, Tesla was almost synonymous with the electric vehicle market, especially in the high-end segment. However, with the continuous development and launch of new products by domestic new energy vehicle companies such as BYD, NIO, and XPeng, the situation is changing. BYD Han, NIO ET5, and XPeng P7 can all exert sufficient pressure on the Model 3.

Therefore, even though Tesla is coming strong with the new Model 3, it remains uncertain whether it can dominate the domestic new energy vehicle market as it did 6 years ago. We believe that domestic new energy vehicle companies are better prepared to face new challenges and battles.