On January 6 this year, Tesla China made a new round of price cuts for the Model 3/Y. After this adjustment, all Tesla models for sale on the official website in China have seen the lowest price in history.Among them, the Model 3 rear-wheel drive version down 36,000 yuan, as long as 229,900 yuan to start, also set a new record low Tesla price history.

But in contrast, theTesla's repeated price cuts have been accompanied by rising profit margins.

Tesla average selling price vs. operating profit trend

Tesla Delivery, Cash Flow, Net Income Trends

On January 26, Tesla announced its fiscal year 2022 fourth quarter and full-year financial results. The financial results show thatTesla Motors' fourth quarter total revenue was $24.318 billion, up 37 percent year-over-year, and net income attributable to common shareholders was $3.7 billion, up 59 percent year-over-year, both record highs, and both stronger than market expectations.

Tesla is optimistic thatBecause of relentless cost control and cost innovation, Tesla believes it will be better positioned than all other original equipment manufacturers (OEMs) for 2023, and ultimately for long-term success。

Previously, Tesla's vice president of external affairs, Tao Lin, saidBehind Tesla's price adjustment covers a myriad of engineering innovations, essentially a unique law of excellent cost control: including not limited to whole vehicle integration design, production line design, supply chain management, and even millisecond optimization of robotic arm co-routing… from “first nature principle” and insist on cost pricing.

In addition to extreme cost control, software revenue has become a cash cow for Tesla.

Tesla expects thatIn addition to hardware generating profits, profits from software will accelerate. “ We continue to believe that our operating profit will remain the highest among volume production OMEs. ”

In fact, theTesla here mentioned “ software brings profits ”, the core is FSD (Full Self-Drive, fully autonomous driving).

Last July, Tesla officially launched the Fully Automated Driving (FSD) subscription package for new users at $199 per month (about RMB 1,289), while users who had previously purchased the Enhanced Autopilot assistance Enhanced Autopilot (EAP) cost $99 per month.

In a simple sentence to summarize is: others sell cars to make money, Tesla sold the car to make money.

Well-known technology analysts, Loup Ventures co-founder Gene Munster (Gene Munster) on the launch of Tesla's service is extremely optimistic. He believes that after ten years, FSD will bring more than $100 billion in annual operating profits, and the market value of the service alone will reach $850 billion, far exceeding the current market value of the entire Tesla company.

Some analysis suggests thatTesla keeps lowering the price with the aim of selling more cars, capturing more share, and getting more users to subscribe or buy FSD.

At the same time, user subscriptions and purchases can in turn provide Tesla with more test data that can be used to further refine the FSD fully autonomous driving system in the future.

So, the vehicle is only the endpoint for Tesla to carry the FSD, and the FSD is the core of what makes Tesla a disruptive company.