Tesla Finds a Warm Welcome in China for Its ‘Fair Price’ Strategy

TeslaModelS

Tesla’s (NASDAQ:TSLA) recent unveiling of its pricing strategy might have given investors and Wall Street analysts cause for concern, but in China, the decision to sell its luxury Model S sedan for the same price that it sell in the U.S. — plus taxes, tariffs, and shipping — is going over quite well with Chinese consumers.

The move by Tesla is yet another way the electric vehicle maker is distinguishing itself from its luxury brethren, many of which are already doing business in China, the world’s largest auto market. Traditionally, its not uncommon for luxury brands to inflate their prices in the country; in China, higher prices are more indicative of prestige, so a more expensive car is more symbolic of wealth in success, not unlike other parts of the world. However, manufacturers are taking advantage of it in China, which is home to a fair number of very wealthy people.

The Audi TT Coupe costs 519,000 yuan ($85,800) in China, over twice the U.S. starting price. Similarly, the Mercedes-Benz SLS AMG costs 3.1 million yuan ($509,000) in China — 150 percent more than the starting price in the States.

Instead of following suite, Tesla will be selling the 85 kWh Model S — the entry-level model for China, though America has a 60 kWh option — for 734,000 yuan, or $121,000. That’s a steep step up from the $81,000 or so that Americans pay for the same car, but after the 25 percent tax, nearly $4,000 in shipping and other fees, the car itself is actually priced at the same level that the U.S.-spec model is.

“If we were to follow standard industry practice, we could get away with charging twice as much for the Model S in China as we do in the United States. But we’re doing things differently,” Tesla said in its blog post last month, which was then pushed to consumers through popular Chinese social media channels, CNBC notes.

The decision by Tesla is not only committing the company to treating its consumers equally, but it blows the doors open on the pricing schemes that have been quite opaque. As CNBC points out, Tesla has turned transparency into a marketing asset. ”Price transparency helps because people see that as different, but the lower price itself, I don’t see a big impact from that,” Andreas Graef, who is a Shanghai-based principal focused on automotive at the A.T. Kearney consulting group.

Others backed up Graef’s assertion that it was more about the action than about the lower price itself. “It’s not just about the pricing strategy, but more to show how to communicate with Chinese consumers in the context of a more transparent pricing world,” said Shawn Wu, a project manager at SmithStreetSolutions.

CNBC further reported that social media posts mentioning the Chinese name for “Tesla” surged over sevenfold between January 22 and January 23, to 3,502 mentions the day after the blog post. The “vast majority” of mentions were reportedly in support of the carmaker’s pricing strategy. ”At last, a business with conscience,” a Weibo user was quoted as saying. “It’s good to see something else other than monopolies and pricing cartels in China.”

Additionally, Tesla has now put other luxury manufacturers in a rather uncomfortable spot, as they will have to now justify why a luxury company like Tesla is able to sell its cutting-edge electric car for less. It will be very interesting indeed to see how these companies react.

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