During Tesla’s record Q3 2021 earnings call yesterday, the company took some time to explain its recent price increases.
According to Zach Kirkhorn, the company’s Chief Financial Officer (and Master of Coin), he detailed “pricing has been a really difficult thing for us over the last couple of quarters.”
Kirkhorn went on to say, “the great thing that we’re seeing in the space right now is there appears to just be quite a profound awakening of desirability for electric vehicles.”
This new consumer demand for EVs has “caught us a little bit off guard,” explained Kirkhorn, adding, “folks want to buy an electric car and folks want to buy a Tesla right now.”
The demand for Tesla vehicles is “very exciting for us”, but Kirkhorn explained while the company has installed capacity to build more cars, there are constraints preventing Tesla from meeting demand, saying “it’s quite the grind.”
Kirkhorn said Tesla is not able to increase production capacity fast enough, to meet demand. But simultaneously, “we are seeing macroeconomic cost impacts on our structure as we’ve discussed previously on the call.”
The Tesla CFO said, “we’re trying to think through how the cost structure is evolving. How does pricing need to change with that? What are the supply dynamics in the space?”.
While automakers change pricing all the time, Tesla is different as “it’s extremely transparent, where that’s not always the case otherwise. And sometimes our pricing will increase, sometimes the pricing will reduce,” said Kirkhorn.
“Sometimes to the public, our pricing changes may not seem to make logical sense but there is a strategy that we work behind the scenes as we’re balancing supply and demand, as we’re also trying to balance various shortages on parts, as we’re trying to manage wait times. All of that goes into the optimization here,” explained Kirkhorn.
Tesla has seen its demand surge, as most estimated vehicle delivery dates have stretched into summer 2022 for its Model 3 and Model Y vehicles. The company has raised prices not only in the United States, but also Canada, in an attempt to adjust to supply chain pressures.
Even with a global semiconductor shortage and lack of parts from its supply chain, Tesla was still able to achieve a record Q3, which saw record net income and revenue, along with gross margins of close to 30%.
