50% More Is A Fair Price

Within the few short months since November 2013, Tesla has received numerous deposits for their Model S and Model X SUV from buyers in China. Final selling prices had not even been determined until late last month. Such is the success of Tesla’s brand that the Chinese were willing to get a foot in regardless of the vehicle’s final price tag. Still, they probably had gauged the eventual cost based on other imported cars. For instance, a popular foreign car in China, the Audi Q7, comes at an entry price of USD48 000 in the States, but once it gets shipped across the Pacific Ocean to the People’s Republic, the price leaps to USD135 000 upwards, almost three times the ownership cost in the US! The hike is partially due to four types of taxes: a 25% import tariff, a 25% to 40% consumption tax depending on engine size, a 17% value-added tax and a 10% purchase tax. With the taxes added up, they still do not account for the final selling price, which raises the question of ‘where is the additional price inflation coming from?’ This brings us back to the topic that we started this article on. The large battery version of the Tesla Model S, which is the only one heading to China and costs about USD80 000 back in the States, will only see a 50% price hike in China. Cue big whoops from the early adopters who had dumped their money in early and can be one of the firsts in China to show off their Teslas, at a cost that is less than expected, no less.

On Tesla’s official blog, the company announced: “This pricing structure is something of a risk for Tesla, but we want to do the right thing for Chinese consumers. 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 US.” The ‘standard industry practice’ that Tesla alludes to is the generally-believed never-admitted practice of foreign automakers (and perhaps many other foreign manufacturers as well) to overprice their products in China, increasing their profit for every vehicle sold. After all, China is now viewed as a very juicy cash cow ripe for milking, and they are being milked for every drop. After being duped for many years, the Chinese consumer is wising up and high price is slowly being dissociated from quality and prestige. The state media has also been shining the spotlight on overpricing of foreign products. Amidst all these, Tesla’s move has garnered much positive hype and support online. Perhaps other foreign companies should realise that if you overmilk a cow, it will kick you in the face. image: businessinsider.com