Tesla continues to cut prices on its cars. The latest cuts were among its most expensive cars. The price war in the electric vehicle (EV) industry, which has begun only in the past few months, is accelerating. It is hard to see how that will not hurt margins. (Click here for the 13 biggest electric vehicle business failures in American history.)
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Tesla reduced the price of its Model X by 9.1% to $99,990. That follows another cut from $120,990, which is where it was at the start of 2023. The company cut the price of its Model S by slightly less. The recent decrease took the price to $89,990, down from $104,990 before the start of the year.
Tesla has tried to calm investors by saying it has an extremely efficient system to make its cars. However, it cannot have made a quantum leap in efficiency in under 90 days. Even with industry-leading efficiency, its profit per vehicle must have fallen over that period.
The widely held belief about Tesla’s plan is that the EV maker wants to hold market share, even at the cost of profit margins. Management says it could sell as many as 2 million cars this year. That will keep it well ahead of any car company in the world, based on total unit sales. However, the largest car companies have spent billions to move into the EV sector. Tesla does not have to deal with one or two manufacturers. It has to deal with over a dozen, each with a global sales network and massive sums of money for production, development and marketing.
Short term, the companies that will be hurt the most are tiny manufacturers, some of which have impressive technology but weak balance sheets. This includes Lordstown, Lucid and Rivian. Price cuts and lower margins could ruin them quickly.
The auto industry has been run on incentives and price cuts for decades. A car shortage in the past two years changed that. Some dealers were even able to charge more than the manufacturer’s suggested retail price. The Tesla price announcement shows those days are over, at least in the EV part of the industry.
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