Tesla Profitability: A Game Theory Perspective
http://seekingalpha.com/article/4001873-tesla-profitability-game-theory-perspective
The article “Tesla Profitability: A Game Theory Perspective” takes a critical look at Tesla’s decisions, focusing primarily on the reservations for the Model 3 sedan to be released late 2017. Tesla went about announcing and taking reservations for the Model 3 in an unprecedented way. In the first day of taking reservations alone, more than 115,000 reservations were placed for a mostly unannounced product which would not be available for (at least) 18 months. Tesla was able to achieve this without much marketing, few physical stores and amidst negative press.
The way Tesla approached the entire situation is counter intuitive from a business perspective. Instead of trying to maximize profits from each car, they choose to sell the car much cheaper than worse competitor products. The normal approach is to maximize profit each quarter, but Tesla has hedged a longer bet. This uncharted territory is leading to many people guessing what Tesla will do next. Customers are forced to guess decisions that Tesla will make based on what is know to be beneficial to Tesla. Tesla in turn has to make decisions with that knowledge that customers are watching them closely. All of this leads to leads to a steady state where many people reverse the car and Tesla has to make its consumers extremely happy.