Tesla has dropped prices so aggressively that by one count the figure has hit five times this year. Based on everything known, the reason is to hold off a growing number of competitors that are only small for now.
According to Reuters, “Tesla cut prices in the United States between 2% and nearly 6%, its website showed on Thursday, as the company extends a discount drive on its electric vehicles that analysts caution could hurt profitability.” On some models, the figure is 10% so far in 2023.
Tesla also said it believes that the $7,500 tax credit people get when buying one of their cars will start to fall. The credit has been a major selling point.
Tesla shipped and sold over 400,000 cars last quarter. Although slightly under expectations, it is higher than the next EV brand by more than ten times. Ford only sold about 10,000 in the same period and considers itself the old-school car EV leader.
The price directions of EVs have become complicated. Ford recently raised the price of its EV flagship, the F-150 Lightning, for the fourth time since August. That has increased the price base of the base model from about $40,000 to $60,000. That puts the cost high enough that some pick-up fans cannot buy one. (These are the most fuel-efficient new trucks this year.)
Price wars bring with them some risk. Margins are almost certainly compressed. That may make Tesla a company with smaller margins. That, in turn, may disappoint some shareholders. On the other hand, it is a way for Tesla to hold its huge market share while everyone from GM to BMW to Toyota moves into the market. In some, traditional car companies have spent, or will spend, hundreds of billions of dollars to get a piece of the future of the car industry.
The EV market is growing. That does not mean every company in the market will make money. (This is every major carmaker’s plan to go electric.)
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