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And yet expensive cars sell. Additionally the margins can be higher if the selling price is higher (and the product more about emotion), so there is more budget to fit in a good battery.

This is the entire reason the Model S was built the way it was.

Depends on the market. I live in the Netherlands (next to Germany) and even though NL is one of the most expensive countries to own a car, luxury german cars are very common here. So are Tesla's by the way.

I've never been to NL and never knew that it was expensive to own a car there. However, having learned that, I am certainly not surprised to also learn that many of the cars there are fancy and expensive. Wealthy people have more fancy and expensive cars than poor people. If none of the poor have cars, a greater portion of existing cars will be fancy and expensive. Singapore was the same, when I lived there. That isn't to say that all vehicles were luxury. Workmen still need work trucks, after all.

And yet, Tesla has the third highest average selling price of all manufacturers. Clearly there is an expectations mismatch.