Price goes up, quantity demanded goes down – it is the law of demand and economics 101. Not in the case of Tesla apparently!
The electric car manufacturer has recently announced soaring profits of $3.3 billion for the first quarter of the year. This is despite higher costs being passed on to consumers in the form of higher prices.
The firm has responded to the surging demand with an increase in output – there was a 68% year-on-year increase in deliveries from January to March. It is estimated as well that this figure would have been even higher were it not for the supply chain shortages around the world. Their sprawling factory in Shanghai for example was forced to shut down as the city went into complete lockdown with the resurgence of Covid-19. The plant is expected to reopen this month though, and along with new factories opening in the US and Germany, it looks like 2022 could be a record year for Tesla’s production and profit.
Q1. When price rises, why is it expected that quantity demanded will go down.
Q2. Explain any possible reasons for why Tesla’s demand is increasing still despite higher prices.
Q3. Using your knowledge of the current global economy, why has Tesla’s production costs increased?
Q4. Assess the impact of Covid-19 on a company like Tesla.
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