• Tesla has increased the prices of its Model S cars in the U.S. by $5,000 amidst stiff competition in the EV market.
• The company faces competition from legacy automakers and Chinese EV makers, impacting the market and global carbon dioxide emissions.
• Tesla's unique business model includes mobile service support and combined sales and service centers, but it has faced significant challenges.
• The recent price increase is a strategic move in the evolving EV market, with Tesla's future likely to be shaped by these market dynamics.

In a recent development, Tesla, the leading electric vehicle manufacturer, has increased the prices of its Model S cars in the United States by $5,000. The price adjustment was confirmed on the company's website. The base variant of the Model S, the All-Wheel Drive (AWD), will now cost $79,990, while the performance Plaid variant will be priced at $94,990. This price increase comes amidst a time when Tesla is facing stiff competition in the electric vehicle (EV) market.

For years, Tesla has been synonymous with EVs, but recently, established automakers and ambitious startups have accelerated their EV programs in response to climate change and tightening emissions regulations. Tesla, once the industry pace-setter, now faces the risk of losing its pole position. The automotive industry is undergoing a significant transformation, akin to the introduction of Ford's Model T, driven by the urgent need to decarbonize transportation.

Tesla's Pricing Strategy and Market Competition

Tesla is facing its greatest competition, not just from legacy automakers with their deep pockets and manufacturing expertise, but also from nimble Chinese EV makers with their cost advantages and government backing. The future of this market has profound implications for investors and our collective future. Autos and light trucks make up about 12% to 15% of the carbon dioxide put into the atmosphere worldwide each year.

In the past, Tesla has made adjustments to its pricing strategy. For instance, in Canada, Tesla lowered the prices of Model 3 and Model Y, but increased the prices of Model S and Model X Plaid. The Model 3 saw both the Rear-Wheel Drive (RWD) and Long Range (LR) variants decreasing by $1,000, now starting at $53,990 and $63,990 respectively. The Model Y saw a more substantial price drop, with all three models, the RWD, LR, and Performance now $2,000 cheaper.

Unique Business Model and Challenges

On the other hand, Tesla's Full Self-Driving (FSD) cost has seen a history of price increases. Elon Musk warned consumers through Twitter that FSD would be more expensive. On August 21, 2022, he tweeted: After wide release of FSD Beta 10.69.2, the price of FSD will rise to $15k in North America on September 5. However, it looks like the buy-rate may have dipped as Tesla started dropping the price of FSD in September 2023.

Tesla's business model is unique in many ways. In some areas, Tesla employs Mobile Service Support-mobile technicians who make house calls. In some cases, the service is delivered remotely. The Model S can wirelessly upload data, so technicians can view and fix some problems without ever physically touching the car. Tesla has combined many of its sales centers with service centers, including charging stations. They believe that opening a service center in a new area corresponds with increased customer demand.

Despite its innovative business model and products, Tesla has faced challenges. In 2018, Tesla disclosed its worst quarterly loss ever. The company produced 53,339 vehicles in Q2 and delivered 22,319 Model S and Model X vehicles and 18,449 Model 3 vehicles, totaling 40,768 deliveries. The difference between what it "produced" and what it delivered is 12,571 vehicles. This was the result of its unabated "manufacturing hell," as CEO Elon Musk had aptly called it, combined with the absolute and existential necessity to do whatever it takes to pump up its stock price.