Tesla’s price cuts could spark an EV price war

DETROIT — You’re here vehicles in the United States are seeing major price cuts, and that’s proving to be a double-edged sword for the electric car maker and the auto industry as a whole.

Earlier this month, Tesla slashed the prices of its new cars by up to 20%, making the vehicles more affordable and likely eligible for federal tax credits. But it also drives down car resale values ​​for current owners and has ripple effects on the auto industry.

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CEO Elon Musk hasn’t directly addressed the price cuts, which run counter to his claims that the company’s cars will appreciate assets – a rarity in the market outside of classics and collectibles. .

Analysts say the price cuts suggest Tesla is prioritizing sales over profits, potentially signaling a demand problem.

“There’s a weakening in demand and they want to improve their sales – or it’s a market share grab,” said Michelle Krebs, executive analyst at Cox Automotive.

For the industry as a whole, Tesla’s price cuts are pressuring other automakers to offer more affordable electric vehicles despite rising commodity costs, creating havoc for vehicle retailers used vehicles that will have to rate vehicles and have Wall Street worried about the first price war for electric vehicles amid fears of a recession.

“Tesla’s price cuts make all other electric vehicles and [internal combustion engine vehicles] looks increasingly expensive, squeezes margins and cools the used-car market,” Morgan Stanley analyst Adam Jonas wrote in a note to investors on Friday.

Car manufacturers regularly change the prices of new vehicles. This is usually done through incentives or when a new model year comes out. But the adjustments, up or down, are historically small so as not to upset the automotive ecosystem for both consumers and car dealers.

Musk announced such a move last month predicting a recession later this year.

“Do you want to increase unit volume, in which case you need to adjust prices downward? Or do you want to grow at a lower rate, or stay flat?” Musk said in December. 22 during a Twitter Spaces conversation. “My bias would be to say we’re growing as fast as we can without putting the business at risk.”

Tesla is due to release fourth-quarter results on Wednesday after the market closes.

When the price of a new vehicle drops, the value of used models also takes a hit. In Tesla’s case, some of the new models cost nearly the same price — barely thousands of dollars off — as their used counterparts. That’s problematic for current owners as well as used-vehicle retailers and Tesla, which sells used models directly to consumers.

In the first 17 days of January, Edmunds reports, used prices of model year 2020 or newer Teslas fell to an average price of $58,657, or 24.5% from their June peak of $76,626.

Cars.com reports that list prices for used vehicles on the consumer shopping website have fallen 3.3% for the Model Y and Model 3 as owners try to hold the line on resale prices despite discounts on new vehicles.

“Tesla’s price cuts will affect consumers very differently depending on which side of the news they sit on,” said Edmunds chief analytics officer Ivan Drury.

On the one hand, Tesla owners have complained to billionaire CEO and Twitter owner Musk on the social media platform that price cuts are devaluing their vehicles. In China, where the price cuts took effect earlier than in the United States, protesters reportedly gathered at the automaker’s showrooms and distribution centers to demand rebates and credits.

Recent Tesla buyers who missed the new price cuts are asking Musk and company to make them whole. They sought out free and premium driver assistance upgrades, free boosting and other perks to offset their higher prices.

Meanwhile, Cars.com and Edmunds both report that interest and searches for Tesla vehicles have skyrocketed since the cuts.

CarMax, the nation’s largest used-vehicle seller, quickly sold hundreds of Teslas after realigning prices. There were only about 150 Tesla cars for sale on Tuesday, down from hundreds before the company cut prices.

“We continually adjust retail vehicle prices in real time to match market conditions and provide competitive pricing,” CarMax COO Joe Wilson said in an emailed statement. “As such, we have adjusted pricing to respond to market conditions related to new car price reductions and this has been positively received by consumers looking to purchase a used Tesla.”

Wall Street analysts were largely positive on the cuts for Tesla as a sales boon.

Tesla enjoyed a significantly higher profit margin on its electric vehicles compared to traditional automakers. Its software and subscription offerings, including its advanced driver assistance systems and in-vehicle Wi-Fi, could help cushion anticipated profit losses due to recent price cuts, as could the credits. tax for electric vehicles.

Additionally, the price cuts are pushing other automakers, or OEMs, to cut prices for their own electric vehicles.

“Most OEMs are losing money on EVs right now, and these price cuts are likely to make business even tougher, just as they try to ramp up production of EV deals,” John wrote. BofA Securities analyst Murphy to investors earlier this month.

Gerald Johnson, General Motors’ head of global manufacturing said Tesla’s cuts do not change the company’s manufacturing plan for electric vehicles. The automaker is currently selling its Chevy Bolt EV models under $30,000 — among the most affordable in the industry — as well as more expensive models on a new battery system.

“We believe we have an electric vehicle for every price bracket and every market segment that we deploy here,” Johnson said Friday at an event in Flint, Michigan. He said Tesla’s price cuts signal the vehicles “may have been too expensive to begin with.”

GM slashed prices for its Bolt models by thousands of dollars last year, only to recently increase them by hundreds of dollars, citing industry pricing pressures.

– CNBC Lora Kolodny and Michael Bloom contributed to this report.