Tesla's 'Hoesla' Strategy, Following Samsung Electronics?

High Operating Profit Margin Basis... Similar to Samsung Electronics
Up to 14% Price Reduction Domestically
50% National Subsidy on All Vehicle Models
Increasing Sales by Adjusting Prices Like a 'Hoetjip'
The Secret is 'Giga Casting'

[Asia Economy Reporter Oh Gyumin] Tesla has lowered the price of its electric vehicles again. Some call this the ‘Hoesla’ strategy, likening it to a sashimi restaurant adjusting prices. However, this is a price adjustment aligned with subsidies and is simultaneously interpreted as a sophisticated ‘competitor killing’ strategy based on high profit margins. Analysts compare this to Samsung Electronics not reducing semiconductor production even when prices plummet. Samsung, with its high profit margins, endures price crashes, while competitors either wither away or are pushed to the brink of collapse. When semiconductor prices rise again, competitors may have already disappeared from the market in the worst case. Even surviving companies become weakened and fail to invest timely, widening the gap with Samsung.

As of the 14th, Tesla Korea’s website lists the base trim price of the Model 3 at 59.9 million KRW. This is about a 9.7% decrease from the previous 66.43 million KRW. The Model 3 Performance model price also dropped from 88.17 million KRW to 75.59 million KRW, a 14.2% decrease. The Model Y (84.99 million KRW → 77.89 million KRW) and Performance (94.73 million KRW → 82.69 million KRW) prices also fell. Tesla had also reduced prices in January, cutting Model 3 and Model Y prices by up to 6 million KRW and 11.65 million KRW respectively.

With this price reduction policy, all Tesla vehicles now qualify for a 50% national subsidy for electric vehicles. According to the subsidy payment criteria announced by the Ministry of Environment on the 2nd, vehicles priced below 57 million KRW receive 100% subsidy (5 million KRW), and those priced between 57 million KRW and 85 million KRW receive 50% subsidy (2.5 million KRW). However, Tesla did not lower the Model 3 base model price below 57 million KRW, the threshold for receiving 100% subsidy. Industry analysts attribute this to maintaining the image of a premium brand.

According to the subsidy policy, competitors such as Hyundai Motor Company and Kia are expected to raise prices in the domestic market. This is because the threshold for receiving 100% subsidy (below 55 million KRW) has increased by 2 million KRW. Pricing vehicles to meet the criteria allows them to receive subsidies while increasing profits.

[Image source=Yonhap News]

While Tesla is lowering prices globally, it is raising prices in the United States due to the Inflation Reduction Act (IRA). Under the IRA, passenger cars must be priced below $55,000 (about 70 million KRW), and sport utility vehicles (SUVs) must be priced below $80,000 to qualify for subsidies. However, there was criticism regarding the ambiguous SUV classification, as some small SUVs that look like SUVs were classified as regular passenger cars. On the 3rd (local time), the U.S. Treasury Department revised the classification criteria for determining tax credits based on the manufacturer’s suggested retail price (MSRP) of electric vehicles. The Tesla Model Y 5-seater was reclassified from a sedan to an SUV. Consequently, Tesla set the Model Y Long Range price $1,500 higher at $54,990, and the Performance price $1,000 higher at $57,990.

Some criticize Tesla’s pricing strategy as ‘Hoesla,’ saying it sells cars at market price like a sashimi restaurant. However, Tesla’s sales volume is increasing following this strategy. In the Chinese market, where prices were drastically reduced, Tesla sold 66,051 units last month, an 18% increase compared to 55,796 units the previous month. Tesla also performed well in Germany, its European production hub. In January, Tesla cut electric vehicle prices in Germany by up to 17%. As a result, it sold 4,241 units in January, marking the largest sales increase among automakers in Germany. However, in Korea, since the subsidy policy was not set in January, electric vehicle sales were almost nonexistent, so sales changes need to be monitored from now on.

▲Joseph Taylor, CEO of Panasonic North America, explaining about the gigafactories of Tesla and Panasonic. (EPA=Yonhap News)

Unlike other competitors, Tesla can price its vehicles like a ‘rubber band,’ and there is a reason for this: its high operating profit margin. Tesla’s net profit per vehicle sold is known to be $9,574, much higher than Hyundai’s $927 and GM’s $2,150. In other words, Tesla can earn more profit even if it sells only as much as its competitors. Due to the high cost of electric vehicle batteries, Tesla’s advantage shines even more.

Tesla’s high operating profit margin is credited to its special vehicle manufacturing method called ‘Giga Casting.’ Traditional vehicles are assembled from parts, but Tesla uses a machine called the Giga Press to apply 6,000 tons of force to create the entire vehicle body at once. This reduces labor and other costs in body manufacturing, enabling high profit margins.

Therefore, competitors such as Hyundai Motor Company and Kia are advised to respond not only through price competition but also by modernizing factories. Even if they adjust prices following Tesla, they cannot gain absolute superiority in sales volume, and due to the already existing gap in operating profit margins, it is difficult to achieve high profits. At one time, as many as 15 companies competed with Samsung Electronics in the semiconductor market, but now most competitors have disappeared. Companies competing with Tesla, which mimics Samsung’s strategy, need to devise more meticulous strategies. There are also concerns that the government should not neglect this issue.

This content was produced with the assistance of AI translation services.