Home Business Tesla’s Price Cuts Could Spur an EV Pricing War

Tesla’s Price Cuts Could Spur an EV Pricing War

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The Tesla showroom at the City Center Shopping Center in Washington DC on January 17, 2023.

Anna Moneymaker | Getty Images

Detroit — Tesla. The United States is experiencing significant price cuts for cars, which is proving to be a double-edged sword for electric car makers and the auto industry as a whole.

Tesla cut prices on new cars earlier this month as much as 20%making vehicles more affordable and more likely to be eligible federal tax credit. But it also reduces the resale value of the car for current owners, with ripple effects across the auto industry.

CEO Elon Musk This is counterintuitive to his claim that the company’s vehicles value assets.

Analysts say the price cuts suggest Tesla is prioritizing sales over profits, which could indicate a demand problem.

“Demand is weakening and we want to improve sales, or we want to gain market share,” said Michelle Krebs, executive analyst at Cox Automotive.

For the industry as a whole, Tesla’s price cut puts pressure on other automakers to offer more affordable EVs despite rising commodity prices, wreaks havoc on used-car retailers, and reduces the number of vehicles sold. It needs to be written down and Wall Street is worried about the first EV price war. In the midst of recession fear.

“Tesla’s price cut puts it ahead of all other EVs [internal combustion engine vehicles] They look increasingly expensive, have compressed margins, and are sending chills across the used-car market,” Morgan Stanley analyst Adam Jonas wrote in an investor note on Friday.

Car manufacturers regularly change the prices of new cars. This is usually done through incentives or when a new model year comes out. But adjustments, both upward and downward, have historically been small to avoid disrupting the automotive ecosystem for both consumers and car dealers.

Musk foresaw such a move last month when forecasting a recession later this year.

“Do you want more unit volume, and if so do you need to adjust your price downwards? said in a conversation on Twitter Spaces. “My bias is to grow as quickly as possible without putting the company at risk.

Tesla is expected to report fourth-quarter earnings after the market close on Wednesday.

Used Car Price

As new car prices fall, so do used car values. For Tesla, some of the newer models sold for about the same price as used models. This is a problem not only for current owners, but also for used car dealers and Tesla. sell used models directly to the consumer.

the first 17 days of January, Edmonds report. Since the 2020 model year, Tesla pre-owned prices have fallen to an average price of $58,657, down 24.5% from its June peak of $76,626.

Cars.com reported that used car list prices on its consumer shopping website fell 3.3% for the Model Y and Model 3.

Ivan Drury, Director of Insights at Edmunds, said:

On the one hand, Tesla owners complained to billionaire CEO, twitter owner. On social media platforms, Musk said the price cuts made his cars less valuable.Protesters reportedly flocked to automaker showrooms and distribution centers in China, where the price cuts came earlier than in the United States. Requesting rebates and credits.

Recent Tesla buyers who missed out on new price cuts are petitioning Musk and company to make them complete. Came for charger, other pluses.

At the same time, Cars.com and Edmunds both report a surge in interest and searches for Tesla cars since the price cut.

Carmax America’s largest used-car dealer quickly sold hundreds of Teslas after readjusting prices. Only about 150 Tesla cars had been sold as of Tuesday, down from hundreds before the company cut prices.

CarMax COO Joe Wilson said in an emailed statement, “In order to keep pace with market conditions and provide competitive pricing, we are continuously adjusting retail vehicle prices in real time. “Therefore, we have adjusted our prices to accommodate market conditions related to lower new car prices, which has been well received by consumers looking to buy a used Tesla.” .”

Peer Pressure

Wall Street analysts were largely positive about Tesla’s cuts as a sales boon.

Tesla enjoys significantly higher profit margins on EVs compared to traditional automakers. Software and subscription services such as advanced driver assistance systems and in-vehicle Wi-Fi, like EV tax credits, could help mitigate the expected loss of profits from recent price cuts.

In addition, price drops are putting pressure on other automakers (OEMs) to lower the prices of their EVs.

“Most OEMs are losing money on EVs right now,” BofA Securities analyst John Murphy said in a letter to investors earlier this month. Like, it’s likely to make business even more difficult.”

Gerald Johnson of General Motors, the head of global manufacturing said Tesla’s cuts wouldn’t change its plans to make electric vehicles. The automaker now sells for less than $30,000 Chevrolet Volt EV Models — One of the most affordable models in the industry — More expensive models with new battery systems.

“I believe there are EVs in every price point and every market segment we’re playing out here,” Johnson said Friday at an event in Flint, Michigan. He said it showed that “it may have been too high in the first place.”

GM price cut The company’s Bolt model went up thousands of dollars last year, but recently it raised hundreds of dollars, citing pricing pressure in the industry.

– CNBC’s Laura Collodny When Michael Bloom Contributed to this report.

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