Tesla opens Pandora’s box - the market has to follow

Dynamic pricing isn’t just for used vehicles, Tesla recently introduced it on new cars. It’s a Pandora’s box, however, that other OEMs have to follow. How will this affect Residual Values? We asked Rick Zielman, Partnership Director for Autotelex in the Netherlands.

In early January 2023, Tesla announced a major price reduction on the Model 3 (by a maximum of €7,000) and the Model Y (max €12,000), both popular leasing cars. “The market was shocked,” says Zielman. “As soon as Tesla made the announcement, our phone rang off the hook.”

Significant move

Autotelex, an automotive data supplier since 1964, was quick to provide perspective. Firstly, not all versions of both models are subject to the maximum reduction. Secondly, Models S and X have not (yet) been down priced. And thirdly, the reduction was, in part, a compensation for price increases in 2022.

Taking those recent increases into account, the price cut on the Model 3 is, in reality, €4,000-€5,000, and on the Model Y €3,000-€10,000. Even so, that’s still a significant move. Tesla is reacting to (or anticipating, depending on the market) reductions in government stimuli for EV purchases.

Supply and demand

“But there’s also the fact that in the case of Tesla, which recently saw that big factory near Berlin come into production, there is an increased supply of product”, explains Zielman, who highlights that Elon Musk’s brand isn’t just adjusting prices in one direction.

“This is very much an instrument to react to different levels of supply and demand. We see, for example, that Tesla has raised its price again, after the cut in January, for some models in the U.S. by as much as $1,000.”

This is indeed dynamic (or ‘floating’) pricing, and other OEMs are already following Tesla’s example, in order to stay competitive.

“One example is the Chinese brand XPeng that will enter the European market with a more aggressive pricing strategy than initially planned’’, illustrates Zielman.

Agency model

The market had better get used to this, because it is precisely to achieve this degree of control over the final pricing of its product that OEMs have been keen to introduce the agency model.
It effectively curtails the pricing autonomy of dealers.

As prices of new vehicles become more unpredictable, or at least less fixed, what will the effect on Residual Values be?

Zielman explains: “In the case of Tesla, we see that the impact on RVs is minimal. The demand for used Teslas is so great that it props up the used price. However, this is also due to the company car tax cuts for EVs. But if the market follows, there will definitely be a downward effect on RVs, especially of used vehicles from lease companies. It should be noted that they have a complex product with a lot of variables. However, we may expect their huge returns on used cars to shrink.”

Compare like for like

That being said, it’s hard to make generalised predictions. Much depends on specific market conditions per country. And we should also remember that we’re not always comparing apples with apples. The lower price for a new car can also mean a lower spec than before, we have seen the trim level differ on a monthly basis due to chip shortages in recent years.

Finally, it should be noted that dynamic pricing indeed means that prices can go up as well as down. All of which adds another dimension of uncertainty to RV prediction.