Electric vehicle (EV) makers are cutting prices in what seems to be a race to the bottom. This will probably stop when these manufacturers lose money on every unit. The leader in the cost-cutting frenzy is Tesla Inc. (NASDAQ: TSLA). It produced and sold 400,000 cars in the first quarter. Ford and GM each produced fewer than 20,000 EVs. Tesla means to keep its huge lead. One way it plans to do so is to keep the price of its cars well below those of the competition. In addition, it can leverage a brand that is among the most valuable in the world to maintain its visibility as the market leader. (These 15 cars hold their value the longest.)
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Reuters said Tesla has cut prices in Europe, Israel and Singapore. It already has made the move in China and the United States, its biggest markets. In the United States, it has cut prices five times since late last year.
Tesla CEO Elon Musk is making a sensible but risky decision. If sales rise at an even, reasonable rate, Tesla can sell 2 million cars a year. That will happen while most of his competitors sell tens of thousands of units annually. Some major manufacturers have not sold a single EV. And these companies are spending billions of dollars to reach for market share they may never have. They may end up competing with one another more than with Tesla. Its lead is that large.
Critics continue to contend that Tesla’s shares are too expensive, given the risk of competition. Its market cap is $589 billion. GM, the largest car company in America, has a market cap of $48 billion. Tesla’s shares are up 45% this year, while GM’s are 2% higher. If the markets are efficient, as they are alleged to be, thousands of investors have voted that the gulf is deserved.
Tesla’s earnings over the next quarter or two will show whether price cuts were a wise financial decision. Its market share over the next year or so will show whether it has been a good long-term move, even if its financial results are not stellar.
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