EV prices—particularly Ford and Tesla—just keep dropping, but investors are watching to see whether or not Tesla CEO Elon Musk’s plans will “enable affordability at scale.”
Key Details
- Musk assured investors last week that Tesla could essentially sell the vehicles for “zero profit” because of its high-margin driverless software.
- In 2023 alone, Tesla’s Model Y has dropped from $65,000 to $47,000—now below the average vehicle price in the U.S.
- While customers appreciate the price cuts, investors are beginning to question Musk’s method as Tesla’s profit margins shrink.
- In the first quarter, the company’s margins were at 19%. While strong, those numbers are some of the lowest in several years, The Hustle reports.
Why it’s news
Tesla’s dropping prices present a problem for its competitors. While Tesla appears to be able to handle reduced prices, its competitors may not be able to withstand the same change. Some competitors may need to hold off on introducing new, expensive electric vehicles (EVs).
Some manufacturers, like Ford, are already dropping their prices. For the second time this year, Ford reduced the price of its Mustang Mach-E. Some versions are as much as 8% cheaper.
Some supporters of Musk’s price-cutting strategy compare his move to Ford founder Henry Ford’s own business maneuverings in 1913. Ford CEO Jim Farley told reporters, “Look up 1913,” referencing Ford’s strategy of developing a new, innovative product and then driving costs down, Bloomberg reports.
Tesla has long been a disruptor in the EV industry, and this new move will determine what happens from here. Tesla’s competitors, many of whom still make gas-powered vehicles, are recovering from pandemic-related issues in the vehicle market. Musk is betting that these manufacturers will have to respond to his price cuts.
“We are trying to resist,” French carmaker Renault CEO Luca de Meo says. He explains that manufacturers must be able to make money from the EV business “Otherwise, this will become—from the beginning—a not-very-healthy business.”
However, all may not be well at Tesla either. Musk has reliably provided growth for his investors. While the company has successfully expanded its manufacturing, its lineup of vehicles has stayed the same.
Musk’s price-dropping strategy may concern some investors, but if Tesla can maintain the narrow profit margins, the company could gain a significant advantage over its competitors.
