Butts In Seats From Referrals Or Tesla Advertising — Why Not Both?

In this blog post, I discuss the most recent advancements in Tesla's ever-evolving referral program, and how it aligns with the ongoing discussion on effective approaches to encourage widespread adoption of electric vehicles.

A few days back, Tesla introduced another method for Tesla owners to earn credits (where 100 credits are equivalent to around $6) by referring their friends to experience a test drive in one of Tesla's four vehicles. If you are interested in scheduling a demonstration drive, you can utilize this referral link. I recommended my son-in-law to take a test drive in a Model S, even though he already owns a Tesla Model Y Long Range. He was astonished by the disparity in acceleration (3.1 seconds from 0 to 60 mph for the standard Model S compared to 4.8 seconds for the Model Y). The sales representative allowed him to drive the car for half an hour, with the only constraint being that the car's speed was limited to 85 mph. Although we didn't view this as a significant issue, we frequently reached that speed limit due to the car's rapid acceleration. As anticipated, when we returned the car, Tesla didn't pressure us or engage in any sales techniques; they simply inquired if we had any questions.

Reduced Prices Or Marketing: Attracting New Customers

The Tesla shareholders frequently engage in discussions regarding the most effective strategy for attracting a large number of new customers. Tesla aims to increase its annual vehicle sales from approximately 2 million to 20 million by 2030. Some shareholders belonging to the traditional school of thought believe that relying on word of mouth and utilizing Tesla's referral program have proven successful thus far, and are more cost-effective methods compared to investing heavily in conventional advertising. According to this group, any available funds should be invested in product enhancements or reducing prices.

On the flip side, as we elaborated further in this article, there is an argument that those strategies were effective when targeting early adopters. However, to thrive in the mainstream market, we need to engage in some advertising. This is crucial because the general population is unaware of the affordability and quality of these vehicles. Elon acknowledged this during the shareholder meeting in May, after being pressured by attending shareholders, and agreed to experiment with advertising to assess its effectiveness. Intrigued by this notion, I decided to conduct a little experiment while visiting my daughter's upper-middle-class neighborhood this morning. I attended a doughnuts and coffee event and posed a question to the five families present. I asked them to estimate the cost of purchasing a base-level Tesla, taking into account both the federal and Colorado tax credit. One of the families already owned a Tesla. The responses ranged from $30,000 to $45,000, with most settling around $40,000.

The accurate response is that a Model 3 has a starting price of $40,240. However, upon checking, I found that they currently have a stock model available for sale at a discounted price of $38,770, which is a reduction of $1,470. Additionally, this car is eligible for various credits and bonuses. Firstly, there is the $7,500 federal tax credit that is available to those who meet the requirements. Secondly, there is a $5,000 tax credit in Colorado that is offered to anyone who pays taxes in the state. Furthermore, there is a current referral credit of $500, and on top of that, you will receive three free months of the Full Self Driving beta suite. When you combine all of these discounts, it amounts to a total of $14,470, which is equivalent to 35% off the original price. However, this is not the only impressive aspect. In January of this year, the price stood at $46,990. By factoring in the $6,750 in price cuts, you end up with a staggering discount of $21,220 off the initial price of the entry-level Tesla. This reduction represents a significant 45% price decrease.

Therefore, the total cost amounts to $25,770, roughly $5,000 lower than the minimum estimated value and $20,000 lower than the maximum estimated value. This limited sample reinforces my belief that the general populace is unaware of the affordability of purchasing and owning a Tesla.

So, what is the most effective approach to address this issue? Offering rewards for referrals, promoting through advertisements, or decreasing prices even further? I believe that reducing prices in the long run is the ideal solution for Tesla as it aims to lower the production costs of its current and upcoming vehicles. However, there is a challenge in the short term as potential customers may opt for a Toyota Corolla due to the misconception that a $45,000 Tesla is unaffordable, despite acknowledging its excellence. Therefore, in the short term, Tesla should focus on raising awareness about the unique benefits of owning a Tesla and how reasonably-priced they are for everyone. This can be achieved through both conventional advertising methods and the referral program, as many people are yet unaware of the recent developments in Tesla's affordability.

If you're interested in using my Tesla referral link to receive Reward Credits, here's the code: https://ts.la/paul92237. However, as mentioned previously, if another Tesla owner has assisted you more, I encourage you to use their link instead of mine. If you'd like to gain further insight into Tesla's latest referral program, I highly recommend reading Chris Boylan's fantastic article on the subject.

Note: I own stocks in Tesla [TSLA], BYD [BYDDY], Nio [NIO], XPeng [XPEV], Hertz [HTZ], and a few ARK ETFs. However, please note that I am not providing any investment recommendations in this blog section.

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