Tesla’s price drop could spark an EV price war

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A Tesla showroom is seen on January 17, 2023 at the City Center Mall in Washington, DC.

Anna Moneymaker | Getty Images

DETROIT — You are here Cars in the United States are seeing significant price cuts, and this is a double-edged sword for the electric car maker and the auto industry as a whole.

Earlier this month, Tesla slashed the price of its new cars by up to 20%, making the vehicles more affordable and eligible for federal tax credits. But it also lowers car resale values ​​for current owners and has a knock-on effect on the auto industry.

CEO Elon Musk did not directly comment on the price drop, which contradicts his claim that the company’s vehicles are appreciating assets — a rarity in the market outside of classics and collectibles. .

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

“Demand has weakened and they want to improve their sales — or capture that market share,” said Michelle Krebs, executive analyst at Cox Automotive.

For the industry as a whole, Tesla’s price drop will force other automakers to offer affordable electric vehicles despite rising commodity costs, which will spell disaster for vehicle retailers who are worried about the first electric price war on Wall Street, which has to price vehicles. cars during recession fears.

“Tesla’s price drop will affect all other electric vehicles and [internal combustion engine vehicles] It looks increasingly expensive, squeezing margins and cooling the used car market,” Morgan Stanley analyst Adam Jonas wrote in a note to investors on Friday.

Car manufacturers are constantly changing the prices of new cars. This is usually done through incentives or when a new model year comes out. But for both consumers and car dealers, there are historically few adjustments up or down to avoid disrupting the automotive ecosystem.

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

“Do you want to increase unit volume, in which case adjust the price downwards?” Or do you want to grow at a slower rate or remain flat?’ Musk said in an interview on Twitter Spaces on December 22. “My approach would be to say we’re growing as fast as we can without jeopardizing the business.”

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

Price used

When the price of a new car drops, so does the value of used models. In the case of Tesla, some of the new models cost almost the same as their predecessors – thousands of dollars cheaper. That’s a problem for current owners, as well as used car dealers and Tesla, which sells used models directly to consumers.

In the first 17 days of January, Edmunds reports, used prices for model year 2020 or later Teslas averaged $58,657, or down 24.5% from June’s high of $76,626.

Tesla stock performance over the past year.

Used-car list prices on the consumer shopping website Cars.com fell 3.3% for the Model Y and Model 3 as owners tried to maintain resale prices despite new-car discounts.

“Tesla’s price cut affects consumers very differently depending on which side of the news they are on,” said Ivan Drury, chief analyst officer at Edmunds.

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

Tesla’s latest buyers who missed out on the new price cut are asking Musk and company to make them whole. They were looking for free and premium driver assistance, free upgrades and other perks to offset the high prices.

Meanwhile, both Cars.com and Edmunds reported a sharp increase in interest and searches for Tesla vehicles following the cuts.

CarMax, the nation’s largest used car retailer, quickly sold hundreds of Teslas after the price change. Only about 150 Tesla vehicles were available for sale Tuesday, down from hundreds before the company cut prices.

“We constantly adjust retail vehicle prices in real-time to match market conditions and provide competitive pricing,” CarMax COO Joe Wilson said in an email. “As such, we have adjusted pricing to respond to market conditions due to lower new car prices and this has been positively received by consumers looking to buy a used Tesla.”

Peer pressure

Wall Street analysts hailed the cut as a benefit of selling Tesla.

Tesla has enjoyed significantly higher profit margins on its electric vehicles than traditional automakers. Its software and subscription offerings, including advanced driver-assistance systems and in-car Wi-Fi, could help offset expected profit losses due to recent price cuts, as could loans. tax on electric vehicles.

In addition, the price drop will prompt other car manufacturers, or OEMs, to lower the prices of their electric vehicles.

“Many OEMs are losing money on EVs right now, and this price drop could make business even harder as they try to ramp up production of EV deals,” John wrote. BofA Securities analyst Murphy told investors earlier this month.

Gerald Johnson, General Motors The global manufacturing chief said Tesla’s cuts will not change the company’s plan to produce electric vehicles. The automaker is currently selling its Chevy Bolt EV models for under $30,000 – the most affordable in the industry, along with more expensive models with a new battery system.

“We believe we have an electric vehicle for every price bracket and every segment of the market that we can accommodate here,” Johnson said at an event in Flint, Michigan on Friday. He said Tesla’s price cut meant the cars “could be too expensive to begin with.”

GM dropped prices on its Bolt models by thousands of dollars last year, only to raise them by hundreds of dollars more recently, citing industry price pressures.

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

All news on the site does not represent the views of the site, but we automatically submit this news and translate it using software technology on the site, rather than a human editor.

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