Tesla's recent price cuts have caused concern
among investors and industry watchers, with
many predicting an electric vehicle price war
in the US. Ford's Jim Farley believes that a
price war is imminent and is wondering who
will blink first. However, mainstream
automakers like Ford might be more
concerned about this than luxury automakers
like Mercedes-Benz and BMW. According to a
note by Bernstein Research analyst Daniel
Roeska, Tesla's price cuts mean that Mercedes
and BMW's offerings have moved clear out of
Tesla's price range, putting them in a better
position in the long run.
Roeska also noted that European automakers
such as Volkswagen, Stellantis, Renault, and
Volvo are still in the firing line of Tesla's price
cuts. He added that Tesla will likely weaponize
its higher standing gross margins, cut prices,
and try to grow or secure market share. The
fear for luxury automakers has been that price
cuts for Tesla's Model 3 and Model Y would
hurt sales of popular models like the BMW 3-
series, Mercedes C-class, and Audi's A4 and
Q4.
As prices for the Model Y and Model 3 have
come down, these entry-level Tesla models are
now competing in the realms of Ford and
Volkswagen. This could hurt perceptions
among price-conscious consumers and give an
edge to brands that retain an air of exclusivity.
Roeska argued that in the premium-end of the
market, where brand perception and social
status are crucial to sales, Tesla is sacrificing
its EV margins and brand equity to achieve
volume ambitions.
Tesla CEO Elon Musk said on the company's
first-quarter earnings call that they expect
their vehicles to generate significant profit
through autonomy over time. This strategy
seems to be a trade-off between higher volume
and a larger fleet versus a lower volume and
higher margin. While Tesla's price cuts might
benefit consumers in the short term, it
remains to be seen whether they will pay off in
the long run. The competitive setting in the EV
market has taken a dramatic step-shift, and
only time will tell which automakers will come
out on top.
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