An impressive fact: Tesla became America’s best-selling luxury automaker without advertising. The company relied on word-of-mouth and a cutting-edge reputation among tech enthusiasts to grow into the most profitable automaker on the planet.
That may soon come to an end.
CEO Elon Musk told investors at an event this week, “We’ll try out a little advertising and see how it goes.”
Surging Sales, Fading Market Share
As recently as 2020, 79% of the electric cars sold in America were Tesla products. In the first quarter of 2023, that same figure was 62.4%.
Tesla’s sales haven’t slipped. The brand just has more competition than ever before. According to Kelley Blue Book parent company Cox Automotive, a year ago, there were 34 electric vehicles to choose from. This year, the number rose to 42, and choice is expected to expand further in every quarter of 2023.
Tesla’s sales, though, have been surging. The company doesn’t report sales figures like other automakers do, but does post the number of cars it delivers and builds each quarter. Both numbers hit a record high in the first quarter of 2023.
But a price-cut war Tesla started cut into margins. Barron’s notes, “Automotive gross profit margins, excluding regulatory credits, came in below 16%, down from about 21% in the fourth quarter of 2022. It is the first time that number has been below 20% since the second quarter of 2020.”
Selling Cars to Sell Software
Why has Tesla cut prices low enough to cause turbulence for the company even as sales spike? Musk told investors last month that the company was selling as many cars as it could now so that it would have more buyers for software downloads later.
“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and a higher margin,” Musk said. Many automakers plan to sell subscriptions to car features for monthly fees. More Teslas on the road means more potential subscribers.
For the first time, the company may try to attract them with commercials.