Investors advise Musk: Instead of cutting prices and promoting sales, Tesla should spend money on advertising

News on October 16 that Tesla rarely spends money on advertising, but as sales growth slows and it adopts a price-cutting strategy to boost car sales, many investors are uneasy. Price cuts in particular could cost Tesla billions of dollars in revenue this year. And GM, Ford and other automakers spend more than $20 billion a year on advertising in big media.

The following is the translation:

In many ways, Gary Black can be called He is a Tesla fan. Since launching the fund in 2021, the Chicago fund manager has made Tesla his largest holding and has frequently expressed his support for Tesla on social media. But Black has been thinking about a question recently: Is Tesla wasting money by cutting prices in order to maintain high growth rates?

With sales of Tesla cars and SUVs lagging and the electric Cybertruck on the way, Black insists Tesla, or Elon Musk,

should Abandon longstanding opposition to spending money on advertising in big media.

Blake’s assertion has drawn support from allies on social media. An online survey conducted by @TroyTeslike, another active Tesla social media fan, found that half of the more than 8,000 respondents believed Tesla should start advertising in lieu of further price cuts and higher-end models. Growth strategies include adding new technologies to Model S and Model X.

Last May, at Tesla’s annual shareholder meeting, when a shareholder questioned Musk on this issue, the latter seemed surprised and even a little amused, but most of the special people present But Silla fans are cheering.

“Even if each Tesla spent $525 on advertising this year, it would still be half of Netflix’s advertising budget, and spending $1,000 would only be equivalent to Netflix’s entire advertising budget, and I see no ads for the latter No. Musk, why don’t you spread the word here about what you’re telling us?” said Kevin Paffrath, who runs The Meet Kevin Pricing Power ETF in Southern California. He specifically pointed out that safety features such as airbag deployment technology are Tesla's strengths and may attract more consumers through advertising.

In fact,

Musk is open to the idea of ​​advertising. He once said: "Tesla has a lot of amazing features and capabilities that people just don't know about. Although there are obviously a lot of people following the Tesla account, you know, to some extent, my personal account has Preaching to the choir, and the choir was convinced." Then Musk made a promise. He said: "I think what you said does have some truth, and I believe it is necessary to adopt these suggestions. We will try to do some advertising and see how it works." Shareholders burst into cheers, and Musk responded: "I I didn’t expect them to be so enthusiastic about advertising.”

However, if shareholders expect Tesla to advertise heavily, they may be disappointed. Wedbush Securities analyst Dan Ives said Tesla spent very little on online and social advertising in the months since. Meanwhile, steep price cuts continue, Musk's main strategy to get more people interested in Tesla.

Musk has always been a staunch supporter of cost reduction. As he said at this year's annual shareholder meeting, one of Tesla's goals is to bring electric transportation to mass-market consumers. In the U.S. market, many Model 3s are already priced below the average price of a new passenger car.

Price cuts impact Tesla gross profit

In fact, according to data from Cox Automotive, since August 2022, the average price of most Tesla models has dropped by approximately 20%. These figures do not include the $7,500 federal tax credit restored under the 2022 Inflation Reduction Act.

But Black said the latest round of price cuts announced last month is costing Tesla $2 billion a year. Overall, Ives estimated, price cuts over the past year had a greater impact on Tesla's revenue.

In fact, Black came up with the above estimate because he believes Musk should reconsider the extent to which Tesla relies on price reduction strategies instead of spending money on advertising to promote electric vehicles. Lower vehicle costs and safety features such as over-the-air software updates. That's especially pressing given that Tesla's stock price, while up about 140% this year, is still a third below its 2021 peak and has consistently lagged the S&P 500's gains last year.

Black said: "I don't think you can get that much elasticity of demand by reducing the price of Model Y from $55,000 to $48,000. Instead of reducing the price by $2,000, you might as well reduce the price by $1,800 and increase advertising. Delivery.”

Black also believes that Tesla’s price cuts are actually a strategy to increase marketing expenses. He said Tesla's market share decline in electric vehicles this year shows that price cuts alone won't work.

In fact, despite Tesla lowering prices, its share of the U.S. electric vehicle market has been declining. Tesla delivered 435,059 vehicles in the third quarter, well up from 343,830 vehicles a year earlier but down from 466,140 vehicles in the second quarter and about 423,000 vehicles in the first quarter. Tesla blamed “planned shutdowns for factory upgrades” for third-quarter results that fell short of analysts’ expectations.

Ives said the negative impact of the price reduction strategy was also reflected in Tesla's gross profit, which fell as a percentage of sales in the second quarter from 25% in the second quarter of 2022. to 18%. That means Tesla's potential gross profit will be reduced by $1.5 billion, unless some of that can be made up through increased sales.

How does Tesla advertise?

We can guess how effective Tesla’s advertising campaign might be, said Allen Weiss, CEO of MarketingProfs, a market research and training company. He pointed out that consumers are concerned about many aspects besides safety features.

He said: "I would first determine what benefits the customer wants to get. Some of them may be more concerned about the performance improvement of Tesla cars. Some people prefer to see it as a luxury product or a status symbol. Some people think that they in helping save the planet. After that, I would find out what these benefits represent, target a subset of these buyers, and come up with good ideas around these benefits. This way, you can both get interesting ideas and engage with buyers about their The challenge for Tesla, Weiss believes, is that as the company grows, it will compete more directly with experienced marketing firms. Ford is already heavily promoting its F-150 Lightning pickup truck, and General Motors has been running SuperBowl ads for the past three years.

Swedish electric carmaker Polestar is also advertising, spending an estimated $20 million this year. Polestar and BMW also both promote electric vehicles during the Super Bowl telecast, even though it is the most expensive telecast in the United States. Industry data firm iSpot estimates that about a quarter of automotive ad spending in 2022 will be targeted at electric vehicles, a trend Ives calls a "wave" that he expects to continue.

Weiss said: "Other automakers are used to paying more attention to customer interests, but Tesla is not. Open Ford's website, click on the 'Electric Vehicles' page, and you will immediately see something exciting. Stunning design, impressive performance and exciting words. Go to BMW's electric car page and you'll see descriptions like 'cutting-edge performance and luxury'. On Tesla's website, you'll just see Price."

Even Musk himself admitted at the annual meeting that people often tell him that Tesla's electric cars are too expensive. He said: "I have talked to a lot of people and they still think Tesla is super expensive. But I don't feel that is the case. The average selling price of Tesla is lower than the average selling price of a new car in the United States."

爱Voss said Tesla doesn't need to spend as much money on advertising as Ford or General Motors, and he believes a targeted advertising campaign could focus on the specific benefits of Tesla or other electric vehicles.

"There's something different about Tesla that people don't know about," he said. Even as the average cost of a Tesla vehicle drops, advertising can be used to maintain its luxury brand image and "start changing people's perceptions."

Ives also said that when Tesla reaches its maximum scale, the most interesting things are sales volume and operating profit margin. Black thinks people will soon find out whether more advertising helps.

Even Musk has begun to believe in the power of advertising. He once said at the annual meeting of shareholders: "I think it is ironic that X relies heavily on advertising, but I personally 'never use advertising' , and now I own a company that relies heavily on advertising. I think I should say that advertising is great, and everyone should advertise."

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