Tesla Needs to Escape EV Price Wars

By Douglas A. McIntyre Published Sep 2, 9:45AM EDT

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EV price wars have begun in China, and Tesla Inc. (NASDAQ: TSLA) will have to cut prices to hold its market share.
Tesla faces a variety of headwinds in China, Europe, and the United States.

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Tesla Needs to Escape EV Price Wars — © jetcityimage / iStock Editorial via Getty Images

Severe electric vehicle (EV) price wars have already started in China. Some BYD cars cost under $23,000. And these are not tiny, urban commuter EVs. They are real sedans that carry four or five people. Tesla Inc. (NASDAQ: TSLA | TSLA Price Prediction) has needed to drop the price of its long-range Model 3 rear-wheel drive in the world’s largest EV market. It is now priced at $37,000. The cut may help Tesla, but it is still competing with less expensive cars with similar features. It is hard to measure the brand value of Tesla in China. It may be the only thing that helps it hold market share.

BYD has started an assault on Europe. That will damage companies like Volkswagen. Tesla has two problems. First, Elon Musk’s image in Europe has eroded. Tesla’s unit sales have been dropping all year. Across the entire region, Tesla registrations are down by more than half in some months in Europe’s largest countries. Second, BYD has pulled ahead of Tesla in unit sales.

Tesla is protected by the U.S. government with tariffs of 100%. Even so, Musk’s image has taken Tesla’s market share below 50%. Car companies, including GM and Hyundai/Kia, have fractions of the market but continue to push several EV products into the market every year. The federal government’s $7,500 EV tax credit disappears in a month. Finally, there is no guarantee that the Trump administration will hold the tariff in place. The president’s decisions about trade policies have been fickle. And his past strong relationship with Musk has frayed.

Tesla does not disclose the margins on each of its models. However, automotive revenue dropped 16% in the most recently reported quarter to $16.6 billion. Across the entire company, net income attributed to common shareholders fell 16% to $1.2 billion. Gross profit fell 15% to $3.9 billion.

Even if Tesla has success as an AI, robotics, and self-driving company, it will take several quarters for them to show up in the profit and loss statement. In the meantime, it has to hold its level of profitability. The global EV price war makes that a long shot.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.