I’m not gonna bury the answer for this one deep in a story to make you scroll down. Tesla raised prices on the Model 3 and Model Y, overnight, with no announcement or explanation for the very obvious reason that it can. That Tesla has repeatedly changed its prices and gotten away with it points to something behavioral psychologists and economists call “anchoring-and-adjustment,” and it’s something that Tesla is very good at, whether intentionally or not.
While we’re on the topic of EVs, I want to touch on how Texas is changing its laws to make EVs more expensive to operate (and why that’s a good thing), as well as Volkswagen’s Scout battle, and Kia and Hyundai’s long streak of wins.
Tesla Made Model 3s and Model Ys $250 More Expensive
For those keeping track at home, here’s a brief timeline of some of the Tesla Model 3 and Model Y price changes just this year, before delivery:
- January 12th, 2023: Tesla drops all prices massively, the Model Y Performance goes from $65,990 to $56,990.
- February 6th, 2023: Tesla raises some prices, the Model Y Performance now costs $57,990.
- March 6th, 2023: Tesla lowers the prices of Model X and S models.
- April 7th, 2023: Tesla lowers prices on Model 3 and Model Y, a Model Y Performance now becomes $53,990.
I think there were some other price adjustments in there? Frankly, it’s getting hard to follow. All I know is that, according to Tesla’s website, Here are the latest adjustments:
BREAKING: @Tesla has increased Model Y prices in the US by $250. Here are the changes:— Sawyer Merritt (@SawyerMerritt) May 2, 2023
• Model Y AWD: $47,240 (from $46,990)
• Model Y Long Range: $50,240 (from $49,990)
• Model Y P: $54,240 (from $53,990) pic.twitter.com/feRHiW0EaK
Sawyer Merritt, who keeps on top of these things, also notes that Chinese and Canadian prices are up, generally, $290 across the board.
So, what is a Model 3 or Model Y actually worth? No real clue.
Both Tesla’s stock price and the price of its cars seem to follow something called the “anchoring-and-adjustment heuristic” identified by a couple of blokes called Amos Tversky and Daniel Kahneman. There’s a good explanation of it here, but I’ll take this brief summary:
In a 1974 paper called “Judgment under Uncertainty: Heuristics and Biases,” Tversky and Kahneman theorized that, when people try to make estimates or predictions, they begin with some initial value, or starting point, and then adjust from there. Anchoring bias happens because the adjustments usually aren’t big enough, leading us to incorrect decisions.
I.e., if you try to negotiate for a gallon of milk and the opening price the dairy farmer gives you is $900, you might think you’re clever if you can get the thing for $450. That’s half-off! Of course, if you have any sense of the actual value of the price of milk you’d realize that’s like 100x too high.
I’m not certain that Elon Musk and Tesla are engaging in any sort of sound or predictable economic reasoning other than: We can win a price war now and, as noted yesterday, lower margins on cars will ultimately result in market share, which will result in more subscription revenue.
There’s another, more obvious psychological trend here as well, which all of us know as “hype.” This is obvious when people line up to pay $1,000 for $260 Swatch watches or get sucked into a game of three card monte. Teslas are both still fairly well hyped products in spite of their increased ubiquity, and every time Tesla moves prices a bit, there’s more interest and attention given to the company (I’m doing it right now!).
Given the increased competition from other automakers, the biggest risk to Tesla is that I don’t think they can get the price that much higher and, inevitably, low margins will strangle investment if magical subscription revenue doesn’t eventually appear.
Texas Creates An EV Tax Of $200 Per Car
If you’ve never lived in Texas, you might get the sense that it’s a low-tax paradise where everyone gets to keep their hard-earned money. This is mostly bupkis. Yes, there’s no state income tax for individuals, but that money tends to be made up by high, regressive sales taxes, outrageous fees, maxed out property taxes, and underfunded services.
Texas is also big (that’s not a secret) and has a lot of roads it needs to maintain. The fourth biggest source of state tax revenue in The Lone Star State? A $.20 tax on gas and diesel. Guess who doesn’t pay those taxes but uses roads? Electric cars and trucks.
In order to come up with more money, the state’s legislature voted to levy a $200 annual fee on electric cars. Is this fair? It depends on who you ask. According to Consumer Reports, this is basically a punishment:
- CR calculated that drivers of new gas-powered vehicles in Texas pay an average of $71 dollars in gas taxes each year. That’s significantly less than the annual fee of $200 or more that’s been proposed for EV owners.
- Flat fees, unlike gas taxes, do not charge people based on how much they use the roads and surrounding infrastructure. Every driver gets hit with the same fees, regardless of how much they drive. So, EV owners who typically take shorter drives would be facing a larger financial burden compared to those who use their vehicle for long-distance travel.
This is all true and, yet, I think this EV fee is actually a good thing, even if it would generate less than 0.3% of the state’s annual costs for maintaining the roads. Why? Because the Texas gas tax is also too low. Basically, legislators in Texas are famously fearful of doing anything that seems like they’re raising taxes (I interned for a Republican state legislator in the Texas house).
I think this, from The Dallas Morning News, pretty much sums up my feelings:
Dylan Jaff, sustainability policy analyst with Consumer Reports, opposed Nichols’ bill and a companion by House Transportation Committee chief Terry Canales, D-Edinburg.
Today, gas taxes account for just 29% of Texas highway funds, the group noted.
“The primary cause of the road funding shortfall in Texas has nothing to do with EVs, but rather with the fact that Texas has not increased their gas tax since 1991,” Jaff said in a memo.
They should levy a $200 fee on EV drivers and then they should raise gas taxes to make it comparable, i.e. approximately $0.50 per gallon. They’re not going to, of course.
It’s not clear if Governor Greg Abbott will sign the bill and make it law.
Volkswagen Needs Scout
The story isn’t just about the Scout; it’s about a larger sandbox for VW to play in. We see three things: First, attract new customers to your brand who wouldn’t have shopped the brand before. Dealers like that. Second, it’s about retaining customers already in your fold—but may migrate out because you don’t have these types of vehicles. And the third opportunity is about the pricing power of these vehicles—and not just the trucks themselves but also the accessories. There’s also the regulatory impact of selling more EVs as emission standards get tougher and tougher through the decade.
If you look at a company like Ford, its lineup is: Crossovers, Trucks, and Mustangs. That’s also its bet on what people will want in the future and, frankly, Ford is probably right. The Bronco has been a hit, the F-Series is still America’s best-selling vehicle, and the Mustang won the muscle car wars. All of Volkswagen’s brands in the United States make crossovers. Some of them make sports cars. None of them make trucks. Here’s more from S&P on why that’s bad:
All our data show that light-duty trucks (SUVs, pickups, especially 4x4s) transact at higher prices than passenger cars. Customers like them; OEMs like the higher prices they bring. That’s why we see cars ebbing and trucks & SUVs dominating. And off-road-capable trucks often have rich margins even before buyers start to customize them.
Also, Scout’s a rad brand. More rad brands.
Kia Sold A Bunch Of Carnivals
I haven’t driven a Kia Carnival minivan. I need to borrow a Carnival. I think it’s a nicely-sized vehicle, and it looks great. Also, Kia sold a bunch of them on its way to a ninth-straight month of year-over-year sales according to their press release:
Following its best first quarter sales performance in company history, Kia America’s sales and market share growth continued with April delivering the brand’s ninth consecutive year-over-year monthly sales increase with 68,205 units sold, a 15.5-percent increase over the same period last year. Sales of Kia’s electrified offerings, which totaled 11,798 units, were up 74-percent over the same period last year and 22-percent over the previous monthly sales record set in March 2023. In addition, Kia’s Carnival MPV achieved record-breaking April sales posting an increase of 52-percent over the previous high in April 2021. Kia’s SUV sales also set new records with Sportage and Telluride posting increases of 18- and 4-percent, respectively, over the previous same month records set by the models in April 2022. Overall, Kia’s capable utility vehicles accounted for 71-percent of April sales.
Hell yeah. Vans are good.
How much of this delay is because people love vans and how much of it is because of crippling shortages that forced people to wait 11 months before they could take delivery? It’s probably a lot of the latter. Still. Vans!
The Big Question
How much should a base Model 3 cost?
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Photos: Tesla, Kia, Volkswagen, GM