Advances in Economics, Business and Management Research, volume 203

Proceedings of the 2021 3rd International Conference on Economic Management and

Cultural Industry (ICEMCI 2021)

Research on Tesla's Price Strategy in China

Shuwen Qin1, a, *, †, Guangzheng Wu2, b, *, †
1
Jiangxi University of Finance and Economics, Business Administration faculty, Nanchang, Jiangsu, China
2
Queen Mary University of London, Corporate finance faculty, London, The United Kingdom
*
Corresponding author. Email: a2201801178@stu.jxufe.edu.cn, bte21873@qmul.ac.uk
†
These authors contributed equally.

ABSTRACT
In 2021, Tesla, as the leader of electric vehicles, is very common in China. Traditional automobile price research
shows that automobiles as a commodity have sufficient price elasticity of demand. However, early research also
shows that electric vehicles do not have sufficient price elasticity of demand as a new type of vehicle. Starting from
the price elasticity of demand, this paper analyzes Tesla's price strategy in China from three dimensions: theoretical
model, econometric test, and case analysis. The research on Tesla's sales data through the ARIMA model and Linear
Regression shows that Tesla's products have a significant price elasticity of demand, which is different from previous
conclusions. The case also shows that price is Tesla's most effective weapon as a market entrant, and price reduction
has brought Tesla a strong entry effect. However, the original incumbents in the Chinese market have been impacted
by the market, failing to seize the advantages of time and geographical location to play a very good preventive effect.

Keywords: Tesla, Skimming Pricing, Entrant, Incumbent, Price Elasticity of Demand, Entry Blocking Effect

1. INTRODUCTION infrastructure construction [2].

With the development of the world economy and the Tesla, founded in 2003, as the benchmark and
acceleration of economic globalization, the use of non- representative of high-end electric vehicle enterprises,
renewable resources such as oil is increasing, bringing has formulated different price strategies in three
about resource scarcity. At the same time, the harm of different stages through the price strategy of skimming
global warming, air pollution and other phenomena has pricing, from 734000 yuan in China at the beginning to
increased dramatically. Governments urgently need the price adjustment of Tesla many times now, the price
renewable and environmentally friendly energy to of new products has been as low as 271000 yuan, which
replace oil, and more environmentally friendly electric has become a product that most families can consume.
vehicles have become a trend. Globally, in 2020, the At the same time, it uses the positioning theory to
global sales of new energy vehicles were 2.987 million, establish a good image in the hearts of consumers and is
31.8% and 0.3%, accounting for 4% of the global favored by the vast number of consumers.
automobile market, 31.8% and 0.3%. The average sales Therefore, as a foreign brand, how does Tesla
growth rate of new energy vehicles exceeded 42%. occupy the Chinese market step by step? What role does
However, due to technical barriers, electric vehicles face its price strategy play? What is the secret？
the defects of insufficient endurance, difficult charging,
and high price, and the price of electric vehicles in the 2. LITERATURE REVIEW
market is generally high. There has been a situation that
it is not popular [1]. Tesla has become the benchmark and representative
of high-end electric vehicle enterprises in its early
China strongly supports the development of the
development. In this process, Tesla has become an
electric vehicle industry and has successively issued
outlier of automobile enterprises. There is no public
policies such as the Notice on the Pilot Subsidies for
relations, no advertising, but it seems that everyone has
Private Purchase of New Energy Vehicles and the 14th
heard of Tesla. In the process, Tesla's price is extremely
Five-Year Plan to provide tax incentives for the
high, which seems to be the exclusive toy of Silicon
development of electric vehicles, as well as financial
Valley's rich elite, but with the development of these
and policy support for enterprises to carry out relevant

Copyright © 2021 The Authors. Published by Atlantis Press International B.V.

This is an open access article distributed under the CC BY-NC 4.0 license -http://creativecommons.org/licenses/by-nc/4.0/. 594
 Advances in Economics, Business and Management Research, volume 203

years. Tesla has become ubiquitous as prices have Kotler, a marketing expert, put forward the famous
become more affordable. In this process, both the three- theory of customer delivered value: the difference
step strategy proposed by Musk Tesla at the beginning between the total cost of customers and the total value
and the pricing changes of Tesla show obvious of customers [6]. At the beginning of price reduction,
characteristics of skimming pricing. Philip Kotler and Tesla's identity benefit can get more delivered value
Gary Armstrong put forward skimming pricing in from Tesla with lower price. However, with the price
Principles of Marketing and roughly divided it into two reduction of Tesla and a series of public relations events
stages. In the first stage, "the price of the product is set in the Chinese market, Tesla has become more and more
very high in the early stage of the product life cycle to popular. The effect of blindly reducing prices is not
obtain the maximum profit and recover the investment entirely beneficial. Tesla's transfer value is much lower
as soon as possible.”? The second phase of skimming than in the past.
pricing "reduces the price over time, allowing the
According to the traditional 4p theory [7] put
product to enter new markets with greater flexibility"
forward by McCarthy in 1960, price is an important part
[3]. In the early days, In the first stage of skimming
of its market success, while according to the 4C strategy
pricing, Tesla recovered its initial investment through
[8] put forward by Lauterbur in 1990, Tesla has done a
high pricing and established the image of high price and
good job in customer purchase convenience, saving
laid a solid foundation for consumer identity in the later
costs, and reducing pricing, but neglected customer
stage.
communication. So, whether to reduce the price or not.
The so-called consumer identity is based on the And what role did the past price reduction strategy play.
Fishbein model proposed by American scholar Fishbein From the United States to China, when Tesla faces a
as early as 1963. The consumer's attitude towards new market like China as a new entrant, the market
consumer goods is the embodiment of self-awareness, share of the traditional market incumbents is squeezed.
and consumers make self-classification according to the Faced with this similar situation, this paper studies entry
consumer group and affect their consumption attitude, prevention from game theory and establishes
and have a herd mentality [4]. As a result, the high simultaneous equations models for 26 different
pricing and the existing consumer population of Tesla at industries. Masson and Shaana found a significant
that time gave sufficient theoretical support to positive correlation between overproduction and price-
consumers eager to flaunt their identity by buying Tesla, cost margin, and the price reduction brought by
which was a major benefit of the first stage of skimming overproduction can effectively prevent entrants from
pricing, in addition to the rapid recovery of investment. seizing the market, but vice versa, entrants, can also use
At the same time, given the positioning theory put excess capacity as a weapon to enter. While under the
forward by the famous American marketing experts Ai setting of single incumbent, single entrant and single
Rees and Jack Trout, positioning is the core point of period [9], Fudenberg and Tirole's game proves through
view. In the positioning theory, the marketing strategy of two stages that the equalization of payments and
Reese Company is expressed concisely and clearly, and dissipative rents make the incumbent's commitment to
then the positioning viewpoint is introduced into the preventing entry by capacity investment unreliable [10].
marketing theory. Positioning theory emphasizes the Yang and Anderson further prove that the ability of
importance of product positioning to determine the commitment value will be reduced if the output is lower
target customers. To ensure that the product has real than the capacity through a multi-stage game model. As
value for the target population [5]. Currently, the a result, the reduction of operating costs will have a
customer portrait and positioning of Tesla, which is in greater chance to gain a first-mover advantage. The
the early stage of skimming pricing, are becoming above research has a special background. That is, the
clearer and clearer, "the elite of the Internet era who starting point of the research is to judge whether these
love environmental protection and are keen to behaviors are anti-competitive. The purpose is that the
experience new things". Currently, Tesla has been antitrust agencies in the United States are investigating
advancing to open the market under the strategy of high the predatory pricing of some companies, not entirely to
pricing. According to the principle of economics, high judge the entry prevention effect [11]. Because the
pricing often means relatively low sales. This paper will existing game model is idealistic, we turn our attention
also study Tesla's price demand elasticity from to the role of demand price elasticity in entry and
traditional economic price demand elasticity. This prevention shown by the existing data of electric
means that to expand Tesla's profit scale further, it is vehicles. In 2017, scholars Deng Ting and Yan Junjie
necessary to expand production and sales. So, when the published articles concluding that consumers who can
time came to 2016, With the launch of Tesla's afford new energy vehicles consider more brands,
Gigafactory plan, the price reduction plan has come, convenience, and comfort. Price only plays a minor role.
which also marks the second stage of Tesla's skimming The price elasticity of new energy vehicles is small [12],
pricing strategy, and the sales of the relatively cheap but the data source of the article is up to 2015, when
Tesla Model 3 rose sharply. According to 1996, Philip Tesla has not yet built a factory in Shanghai, and now

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 Advances in Economics, Business and Management Research, volume 203

the market situation of electric vehicles has changed, June of that year, the factory was completed, production
this paper will make a supplementary study on the price equipment was installed, and trial production began in
elasticity of demand. October. With the successful launch of the first trial
vehicle, the factory was approved on January 7, 2020.
Based on the above theory, this paper will construct
On the first anniversary of the start of construction,
a model of Tesla's price strategy and the effect of price
Tesla announced the official delivery of Model 3 made
strategy combined with the industrial environment and
in China, and Tesla entered the last step of the three-step
simplify Tesla's price strategy from a simplified model
strategy. Today, Tesla's prices are falling, and Model 3
through a multi-angle and multi-dimensional framework
sales are rising.
model. It starts from three aspects: building model,
theoretical analysis, Tesla's background, and business
environment. Finally, this paper explores the internal 3.2 Prerequisites for Tesla's Price Reduction
logic of Tesla's price strategy in the process of entering
the Chinese market as an entrant and challenging the 3.2.1 Impact of Tesla's Product Technology on
incumbent and provides some enlightenment for local Price
Chinese enterprises.
The development of electric vehicles in China has a
long history, and the research and development of
3. BASIC SUMMARY electric vehicles in China can be traced back to the
1960s. The state has also listed electric vehicles as a key
3.1 History of Tesla scientific research project in the "Eighth Five-Year
In July 2003, Tesla was founded by Mark Plan" and "Ninth Five-Year Plan” and has achieved
Tappenning and Martin Eberhard. In 2004, Musk certain results. However, limited by the technology of
officially raised a round of financing and produced the electric vehicles, electric vehicles are expensive.
first electric sports car in 2008, which was named Problems such as insufficient endurance have always
Roadster. The car was designed and produced by Tesla existed, resulting in electric vehicles becoming a
and Lotus Engineering, Lotus Car, a British Lotus "luxury" with low-cost performance [14]. By improving
company. Roadster borrows the structure of Lotus sports the technology of electric vehicles and replicating the
car (Elise) and designs four modules of body frame, strategy of charging piles that have been laid out abroad,
battery, battery management system and electric motor Tesla has greatly improved the shortcomings of
for assembly and production. In this process, Tesla, as a insufficient endurance and performance of electric
new entrant in the industry, borrowed existing mature vehicles, and at the same time, reducing the cost of
products and production lines and creatively designed electric V epiclesis has increased Tesla's overall sales
an open modular product architecture, successfully and provided some room for Tesla's price reduction.
breaking through barriers to enter the new energy Compared with traditional high-performance vehicles,
vehicle market [13]. Tesla's new electric vehicles are better, and Tesla's
electric vehicles have gained a greater advantage in the
After 2014, the outside world questioned whether market competition while taking advantage of its own
Tesla had the right to sell its products, some States in the product and technology advantages to occupying a
United States considered Tesla's stores illegal, and the larger market share at a lower price [15].
Automobile Dealers Association opposed Tesla's direct
marketing strategy. As a result, Tesla's position that it 3.2.2 Innovation of sales model
has no intention of gaining business privileges and only
hopes to sell its own cars gained more support in Tesla adheres to the self-built marketing model,
September 2014. It also won a lawsuit against Tesla which does not distribute cars to agents like most car
stores in the Supreme Court of Massachusetts, which companies but adopts the online sales plus self-operated
was a huge step forward in Tesla's direct marketing store model, which greatly strengthens the self-control
strategy, and Musk used the victory in other state of the end of the sales, and is an O2O model [16].
lawsuits.
Since its founding in 2003, Tesla has operated the
In June 2014, Elon Musk published a blog post electric vehicle market in the United States, while
announcing that all Tesla patents could be used by other maintaining a very different sales model from other
companies free of charge. Free patents allow automotive companies. That is, Tesla insists on selling
competitors to use Tesla's breakthrough technology, electric vehicles directly to consumers, rather than
promote the maturity of the electric vehicle market, help through intermediate dealers. After entering the Chinese
Tesla through the crisis stage, and expand the market market in April 2014, Tesla maintained its unique sales
size of electric vehicles. model. At the same time, Tesla has also formulated the
same price strategy for the national conditions and
In 2016, Tesla China Factory was approved. On
market conditions of different countries to treat
January 7, 2019, Tesla China Factory broke ground. In

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consumers in different countries fairly. Compared with reducing prices to 27. Ten thousand yuan.
traditional automobile brands, Tesla has a higher price
transparency, which is deeply loved by Chinese 4 ANALYSIS OF TESLA’S PRICE
consumers and has established a good brand image for STRATEGY
Tesla in the domestic market. Thanks to Tesla's open-
source policy, allowing other electric vehicle companies 4.1 Overview of Tesla's Pricing Strategy
to use Tesla's patented knowledge on electric vehicles
has greatly promoted the rapid development of the At the beginning of its establishment, Tesla put
electric vehicle industry as a whole, reduced technical forward a "three-step" development strategy: first, to
barriers, and at the same time, the relatively fair develop high-end, high-performance sports electric
technical environment has prompted enterprises to focus vehicles, while proving the feasibility of electric
on technological innovation to enhance competitiveness vehicles, to be "dazzling" enough to attract the first
[13]. This kind of direct marketing strategy for batch of targeting customers-high-income people with
consumers reduces the intermediate circulation links, environmental awareness and celebrities who pay
reduces the miscellaneous sales costs, and provides attention to public image. Especially the young talents
conditions for Tesla's subsequent price strategy. of Silicon Valley and Hollywood stars. The second step
is to develop electric vehicles with prices close to luxury
3.2.3 Impact of China's Policy Support on Tesla brands such as Mercedes-Benz and BMW. Finally, the
Price third step is to introduce low-cost and economical
electric vehicles whose prices are acceptable to the
In recent years, with the destruction of the ecological public and can be promoted on a large scale. This
environment and the sharp increase in resource process from high price to low price is in line with the
consumption, the Chinese government has strongly definition of skimming pricing by Philip Kotler and
supported the development of electric vehicles. With the Gary Armstrong. At present, Tesla's products on sale are
development of electric vehicles, a few policies have Model 3 (July 2017), Model Y (March 2020), Model X
been introduced to facilitate the development of e (September 2015) and Model S (June 2012) in order of
electric vehicles. In June 2010, The National price. The price of new products launched by Tesla is
Development and Reform Commission, the Ministry of from high to low, from far to near. Among them, the
Science and Technology, the Ministry of Finance and products launched at different times also show some
the Ministry of Industry and Information Technology different pricing characteristics. Among these products,
agreed to and issued the Notice on the Pilot Model 3 and Model Y is made in China. As the main
Implementation of Subsidies for Private Purchase of products to open the Chinese market, these two products
New Energy Vehicles, and five cities worked out the are the main skimming pricing strategy. Taking the
pilot implementation plan of subsidies for the private standard endurance version as an example, according to
purchase of new energy vehicles, which granted a the price on Tesla's official website, we fit the product
maximum subsidy of 60,000 yuan per electric vehicle. price trend chart [Figure 1]. We can draw a more
In addition, the government has reduced the price of intuitive conclusion: The price strategy adopted by Tesla
electric vehicles by reducing the purchase tax and when entering the Chinese market is skimming pricing.
subsidizing the purchase price to attract consumers to
buy electric vehicles. Many favorable policies also led 4.2 'Tesla' price elasticity analysis
Tesla to start reducing prices. In April 2020, as soon as
the Notice on Improving the Financial Subsidy Policy From Tesla's earnings over the years, we can get the
for the Promotion and Application of New Energy following chart.
Vehicles was issued, Tesla was the first to respond,

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unit：10 thousand RMB

60

55

50
48.8 48.8 48.8

40
36.3935.58
33.1 33.99
30 29.9 29.9
27.1 27.6
24.99 24.99
23.59
20

10

0
01-11-2018
01-12-2018
01-01-2019

01-03-2019
01-04-2019
01-05-2019
01-06-2019
01-07-2019
01-08-2019
01-09-2019
01-10-2019
01-11-2019
01-12-2019
01-01-2020
01-02-2020
01-03-2020

01-05-2020
01-06-2020
01-07-2020
01-08-2020
01-09-2020
01-10-2020
01-11-2020
01-12-2020

01-02-2021
01-03-2021
01-04-2021
01-05-2021
01-06-2021
01-07-2021
01-02-2019

01-04-2020

01-01-2021
10-11- 01-08- 01-10- 01-12- 29-12- 01-04- 01-08- 01-10- 01-01- 01-07-
2018 2019 2019 2019 2019 2020 2020 2020 2021 2021
Model 3 55 36.39 35.58 33.1 29.9 29.9 27.1 24.99 24.99 23.59
Model Y 48.8 48.8 48.8 33.99 27.6
Model 3
Model Y

Figure 1. Price trends of Tesla products

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1,80,000 price reduction came from the official approval of the

Shanghai Super Factory in 2016, when Tesla's Shanghai
factory was officially put into operation in 2019. The
1,60,000 1,61,701
Model 3 of the Tesla factory in Shanghai was officially
put into production, as shown in Figure 1. At the same
1,40,000 time, the price of Model 3 was greatly reduced, although
the price data of Tesla since 2018 was analyzed by SPSS
1,24,318
1,20,000 software according to Deng Ting and Yan Junjie [12]. It
can be concluded that the significance level of price and
1,00,000 sales volume is 0.755, which is greater than 0.5,
92,620 indicating that there is no significant relationship.
However, since the analysis of the correlation between
80,000 79,703 80,277
77,634 76,266 price adjustment and sales increase is a static analysis, it
63,359 is not entirely applicable to the relationship between
60,000 price and sales in the automobile sales market. The
56,065
50,928 effect of price on sales needs to give the market a certain
40,000 reaction time, so we adopt the analysis method of
reducing the time interval of analysis, taking price
20,000 18,449 reduction as the node and price as the cycle. The
average sales volume of each price cycle was calculated
8,182
0
to correct the inaccuracy of the data, and the ARIMA
time series model was used to move the data to the
average quarterly sales volume of the same price cycle
(as shown in Figure 3). After SPSS [17] analysis, the
significance level was 0.001. It shows that there is a
Figure 2. Sales volume of Model 3 and Model Y (unit:
significant correlation between sales volume and price
vehicle)
[18].
𝜕𝑄 (𝑃 +𝑃2 )÷2
120000 110640.25 𝐸𝑑 = − × (𝑄1 (1)
𝜕𝑃 1 +𝑄2 )÷2

𝜕𝑄
100000 92620 Indicates the slope of the demand curve; In
𝜕𝑃
general, the demand and the price change in the opposite
77634 79703 direction, so there is a "-" sign in the formula, which
80000
means that when the price rises, the demand decreases,
and vice versa, when the price falls, the demand
60000 increases. P1 and P2 represent the lowest and highest
prices of Tesla Model 3/Y series from 2018 to 2020,
40000 respectively, and Q1 and Q2 represent the sales volume
of Model 3/Y at P1 and P2, respectively. The data after
18688 Tesla set up a factory in China and started mass
20000 13315.5
production were substituted into the formula for
calculation and linear regression analysis (Pearson
0 analysis) to obtain R2 = 0.987, and the sales formula of
Tesla was fitted as follows: Q = 189368.061 −
3275.804 × 𝑃The R-square value of the model is 0.987,
which means that the price can explain 98.7% of the
UNIT: RMB change in sales volume. The model passed the F test (F
= 292.797, p = 0.001 < 0.05) [19], which means that the
Average quarterly sales at different price points
price must have an impact on the sales volume. The
final specific analysis shows that the regression
Figure 3. Average quarterly sales at different price coefficient of the price is -3275.804 (t = -17.111, p =
points 0.001 < 0.01).
(23.59+55)/2
Tesla officially entered China in 2013, when Tesla's Ed = −(−3275.804) × = 2.077 (2)
(13315.5+110640.25)/2
main product was Model S, but at that time, Tesla had
not yet realized its plan to build a factory in China. At 2.077 > 1 indicates that Tesla's Model 3/Y, two
that time, Model S was priced at 734000 RMB, which mass-produced models in the Chinese market, are price
was still a luxury car for the people. The intro to the elastic in demand, meaning that price will significantly

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impact sales [19]. The fitting conclusion shows that the satisfaction is:
demand will increase by 2.077% when the price falls by
Overall satisfaction Y = 0.223 * X1 + 2.012 * X2 +
1%. As the representative of the electric vehicle
0.441 * X3 + 0.253 * X4 + 0.362 * X5 + 0.633 * X6-
industry, Tesla is different from Deng Ting through the
10.911 (3)
price elasticity performance of Tesla. Yan Junjie
concluded in 2015 that electric vehicles do not have a The impact factor of image value is 0.253 [20].
price elasticity of demand. That is, price is a significant
Because Tesla's price reduction directly reduces
factor affecting consumers buying electric vehicles. This
Tesla's total customer cost to a great extent, according to
price elasticity performance proves that for Tesla, in the
the formula of "delivered value = total customer value-
price reduction stage of skimming pricing, the price has
total customer cost" [4], Tesla's customer satisfaction
greatly contributed to the increase of sales.
can be greatly improved. When the perceived value is
greater than the expected value, customers are highly
4.3 Application of skimming pricing satisfied and feel happy. In addition, the benefit of
When Tesla produced its first car in February 2008, image value to transfer value magnifies the demand-
Tesla deliberately chose seven elites from Silicon Valley supply effect, which makes Tesla's sales successfully
as its first customers, including Google founders Larry rank at the forefront of the market in this price reduction
Page and Sergey Brin. Jeff Skoll of eBay. This is a stage. In June 2020, Tesla Model 3 won first place in
milestone in Tesla's history. The delivery of these seven global sales with 35900 vehicles, and the cumulative
Roadsters quickly created Tesla's trendy and high-end sales of Tesla Model 3 in January-June also ranked first.
image in the public mind and gave Tesla's user portrait: It is also the only model with a cumulative sale of more
high-end, love of environmental protection, love of than 100000 vehicles.
technology, trendy. With such a marketing start and In this process, we can regard Tesla's price strategy
precise customer positioning, Tesla soon had many fans. as like Tesla's marketing strategy. From the keyword
Tesla has become a carrier for users to express their search of the Internet, apart from the huge discussion
identity and image. Then it gradually gained a foothold and news reports brought about by Tesla CEO's Twitter
in the North American market, accelerated its price reduction, there is almost no real advertising,
development, and became the leader of electric vehicles. which shows that the price reduction is far beyond the
At this stage, the price range of Tesla's Roadster electric price reduction itself. Its sensational advertising effect
vehicle is between $100000 and $170000, which is and more transfer value are the fundamental reasons for
comparable to Porsche 911 in the United States at the its sales expansion and market share rise.
same time. It belongs to the price category of luxury
cars. Today, Model X and Model Y are still priced in the 4.4 Motivation and Background Analysis of
luxury car range. During this period, the high price Tesla's Price Reduction Strategy
brought about the return of funds and established the
public's first impression of Tesla, which greatly Although Tesla, as the leading brand of electric
enhanced the brand power and product transfer value. vehicles, has a great influence globally, it is not
This is the high pricing stage of Tesla. optimistic in the early Chinese market. According to the
In the second stage of Tesla's price, Tesla planned a sales data of Tesla in the first three quarters of 2015, the
Chinese factory in 2016 and officially put it into number of Tesla deliveries in China in 2015 will not
production in 2019. By the end of July 2021, the starting exceed 5000. The huge Chinese market contrasts with
price of Model 3 had dropped from 550,000 at the the small contribution rate. Among them, Tesla's high
beginning of its launch in 2018 to 235,900. It took only price and imperfect infrastructure in the early Chinese
three years for the price to be cut in half. Throughout the market were the main factors that hindered sales. Tesla's
automobile market, such a large price reduction is rare. early pricing in the Chinese market was based on the
According to the analysis in Section 3.2, for every 1% pricing in the US market, but due to high transportation
decrease in price, the demand will increase by 2. Under costs and various taxes and fees to enter the Chinese
the price elasticity data of 077%, Model 3's price market, Tesla's pricing after entering the Chinese market
reduction strategy has become a magic weapon to open was often high. At the same time, due to the objective
up the Chinese market. In this process, it is worth reasons of electric vehicles, their production costs are
mentioning that the O2 O model is an important sales often much higher than similar fuel vehicles. Although
model for Tesla. The high-end image established by Tesla has gained the image label of luxury and high-end
Tesla at the high price stage has given customers a huge in China and has a unique attraction for some
benefit in terms of consumer image recognition. It is the consumers, the high price still becomes a barrier to limit
image value in the four basic value elements of product the release of purchasing power of the main consumers
value, personnel value, service, and image. In this in the market. Throughout the history of automobile
category, the standardized regression equation of overall development, Luxury brands such as Bentley, Bugatti
and Lamborghini were eventually acquired by

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Volkswagen Group, and Ferrari became the pride of Fiat 5. CONCLUSION

Group. Thus, relying solely on the high-end market in
the current market conditions, it is impossible to 5.1 Entry prevention effect of Tesla's price
succeed in becoming the world's first car company, so strategy
Tesla to open the situation, the price reduction will be a
feasible way. The incumbent refers to the company that As shown in Figure 1, in price reduction, the sales
occupied China's domestic traditional and electric volume of Tesla electric vehicles is also gradually
vehicles before Tesla entered the domestic market. increasing. In the early stage, Tesla uses skimming
When Tesla entered the domestic market, it used its pricing to recover costs through high prices quickly. In
technological advantages to gradually occupy a larger the mature stage of products, Tesla steadily reduces
market share by reducing the price of electric vehicles, prices and uses high cost-effective pricing to attract
forcing the incumbent to spend more time and cost on consumers to buy Tesla electric vehicles, thus defining
electric vehicle technology research. At the same time, it the target consumer groups. This price strategy has
also forces other electric vehicle companies to reduce helped Tesla capture a larger share of the market for
prices together. In the past, the direction of capacity electric vehicles.
expansion of incumbents was mainly the simple upgrade
On July 30, 2021, the price of the upgraded version
of old models. In the new competitive environment of
of Tesla's standard endurance was lowered by 15000
multi-variety, multi-batch and differentiation, this
yuan again, and the adjusted price started at 235900
strategy has lost its existing advantages, but in the short
yuan. Meanwhile, on July 8, Tesla lowered the threshold
term, it has fallen into the dilemma of insufficient
of Model Y made in China by 70000 yuan to 276000
innovation, fewer brand reserves and high inventory
yuan. Because of the excessive price reduction and the
pressure. This also provided an advantage for Tesla to
high performance-price ratio, many consumers are
quickly occupy the electric vehicle market.
attracted to order Tesla in July 2021, and will wait until
October to get the car. The sales of Model Y are
4.5 Reasons for Price Elasticity of Tesla booming. This is also in line with the previous analysis
Demand and judgment of Tesla's price elasticity of demand. On
First, through the research of this paper, Tesla's July 27th, Tesla released its second-quarter earnings
automobile products have great price elasticity. Unlike after the US market. According to the report, Tesla's
the research conclusion before 2015, the reason may be revenue in the second quarter was about $11.96 billion,
that before 2015, the price of electric vehicles is up about 98% year-on-year, and its GAAP net profit
generally high, and Tesla has not yet achieved domestic attributable to ordinary shareholders was about $1.14
production. At the same time, unlike traditional vehicles, billion, nearly ten times that of the same period last year.
electric vehicles have not yet been widely popularized, For the first time, the company's net profit exceeded $1
and electric vehicles are still in the fresh period of the billion. Among them, Tesla's automotive business
market. Consumers who are willing to try to buy and revenue during the reporting period was about $10.21
use electric vehicles often already own traditional cars billion, an increase of about 97% over the same period
and have a taste for buying electric vehicles. At the last year, and the GAAP gross profit rate of automobiles
same time, the consumer surplus of this consumer group in the second quarter also increased from 25.4% in the
is high, and they can afford a larger expenditure. For same period last year to 28.4%. Among them, Model 3,
such a group, the price is often not the first factor they and Model Y account for most new cars. At the same
consider, and the quality of the car is the main time, according to the National Bureau of Statistics,
consideration for them to buy or not [21]. But after since 2021, the cumulative growth rate of new energy
2015, Tesla's Chinese factory began production. The vehicle production in China has remained above 200%,
concept of electric vehicles has been bred and matured and the cumulative growth rate of new energy vehicle
in China. It is no longer a novel and trendy concept but production in June reached 205%. The Chinese market
a common commodity in life like a gasoline car. This accounts for 30% of Tesla's global market. Since Tesla
also means that the sinking of the electric vehicle entered China, it has taken less than five years to grow
market will start to replace the gasoline vehicle market. 15 times from 2% to 30%. Therefore, Tesla's price
As a result, electric vehicles gradually have the same reduction strategy has helped Tesla to expand its share
commodity attributes as gasoline vehicles and begin to of the new energy vehicle market in China. At the same
homogenize from commodity classification. Therefore, time, it is expected to occupy more market share of
Tesla has a price elasticity of demand after 2015, which electric vehicles and further enhance its sales of
is also consistent with the conclusion of our study. automobile business under the good overall
development trend of new energy vehicles in China.
In this process, Tesla has made a successful
breakthrough in the face of local automobile
manufacturers such as BYD, Weilai, Ideal and other

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former incumbents. Among them, Tesla's demand price companies have seized Tesla's weakness to make up for
elasticity plays a huge role, and according to the price its shortcomings and strengthen their attacks to compete
trend of local incumbents, it has obvious defensive for the market.
characteristics. The sudden and preemptive price
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