The Slippery Slope About Price Wars — Brand And Positioning

We watched Tesla trying desperate to maintain their margins, if not mitigate losses by slashing prices to make their electric vehicles more affordable. Unfortunately, it still lost to BYD — the Chinese titan whose EVs are known globally. Where does that leave the other brands?

To date, Charlie Munger is still holding on to his glory of the lucrative bet on BYD with proper credit given to Wang Chuanfu. The latter’s remarkable business acumen made BYD to what it has become today. BYD’s success has eclipsed several continental automakers that one could not help but wonder if price wars is the only way to claw back its margins to win back consumers.

Reuters reported more than 40 auto brands have followed Tesla in cutting prices on EVs since January in a price war that has supported sales of EVs and plug-in hybrid electric vehicles (PHEVs), both of which are classed as “new energy vehicles” in China. It has also cut into industry-wide profitability, analysts say. 

PHEVs’ popularity is an indication going fully electric will take a long time — subject to various countries’ infrastructure apart from takeups (determined by pricing). Leaving out geographical pricing, EV started out with a “premium car” label akin to middle class buying a top-tier Mercedes Benz. When adoption was too slow, various governments rolled out incentives to encourage acceptance. However, pockets can run dry.

Perception Is Reality

In some nations, owning a car is a symbol of wealth. Making a product affordable is certainly enabling individuals to be a part of a social class. However, socioeconomic status is volatile and could dissipate quicker than anyone could realise from branding alone.

Tesla was launched in 2012, and became the hottest EV within three years (2015). By 2021, it’s popularity started to dip and when BYD entered the ring, the heat intensified.

From a macro perspective, it is anybody’s guess if a Tesla owner feels misled now. If he/she paid big dollars for one, and to find out now that prices have plunged, nothing can be done to mitigate losses. Financing would not change, and for some, selling the vehicle equates to bigger losses.

As much as the unspoken perception of Asian-made goods are inferior to their Western counterparts, there are still camps willing to be corrected by trying out the former. Realising they are on-par, and paying a premium just for the expensive emblem earlier was a big financial blunder may result in a major public relations crisis for continental cars. Others may be collateral damage for a chain brand blow.

The saying “Cheap may not be good, and good things do not come cheap” may hold much lesser weight than one would think. On the other hand, what if the lowered prices are byproducts of economical upstream? Inflation rules out the possibility of decreased raw materials costs or efficient production processes. It would be an uphill battle to contain the PR damage for a wrong move.

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