The question arises because Elon Musk, the multi-entrepreneur with wobbly libertarian leanings, is the CEO of Tesla, the battery-car company; and, at the behest of the Ministry of Industry and Information Technology, Tesla and fifteen Chinese automobile manufacturers recently signed a pledge to not only “put quality first” and avoid “false publicity” but also to “promote core socialist values” and steer clear of cutting prices in an “abnormal” way.
(Charging less than competing companies is one of the bad things that profit-seeking companies do, according to the anti-realistic economic and moral assumptions thus implied. Charging the same as other companies is another of the bad things. Charging more is also bad. Hence, the best way for companies to protect themselves from anti-realist regulators and theoreticians is to never charge less than, the same as, or more than what other companies in an industry charge for a product.)
We learn from a July 2023 Bloomberg report offering the translation of the pledge quoted above that a price war in China among automakers had angered certain customers—namely, those who already owned a Tesla and who were seeing new models offered for a price as much as 14% lower than last-year models. The article does not, however, instruct us about new buyers who bought a new car only because of the price cuts. Were they unhappy about the lower prices that enabled them to make the purchase? Presumably, not everyone in China prefers prices to be as high as possible.
According to Bloomberg, the price war was just about wrapped up when the car makers signed the pledge.
Cuts had become less aggressive and in some cases prices were revised upward as sales regained momentum. Deliveries from Tesla’s Shanghai plant in June climbed almost 20% from a year earlier, and shipments from Chinese automakers such as BYD and Li Auto Inc. also jumped. Authorities expect last month’s new-energy vehicle sales to have risen 30% from June 2022.
“The agreement comes at a time when the price war is already at the point of pause,” China Passenger Car Association Secretary General Cui Dongshu said.
The implication seems to be that the pledge doesn’t matter because it won’t affect the actions of the automakers in the near term anyway. But what happens if six months or four years down the road, conditions are such that major reductions of price are again warranted?
Bloomberg makes clear that the recent price drops were not a matter of waging an ornery price war for the heck of it but were a response to market conditions, such as a pandemic-related slump in demand. But Chinese government officials won’t feel obliged to accept how markets work if and when they find it expedient to flourish the pledge in order to rationalize a crackdown on Chinese automakers or on Tesla. Musk should have refused to let Tesla commit itself to such a pledge. And he should get Tesla out of China.
