EV Price Battle: Tesla and Ford Slash Prices, Will Other Car Makers Follow?

Last month, Tesla made one of the biggest price drops in EV history, reducing the price of its Model Y by almost 20 percent. The move sent shockwaves through the auto industry and sparked speculation about the future of the EV market. A few weeks later, Ford followed suit by cutting the price of its electric Mustang Mach-E. Analysts and experts are now monitoring the situation to see if other car manufacturers will follow suit.

While the price cuts are great news for consumers, they could also be a sign that the EV industry is changing. Sticker price cuts across a company’s lineup or on a specific vehicle are quite rare in the auto industry, although they are not unheard of. Most car manufacturers prefer to use incentive campaigns that change from month to month to lower prices.

The price cuts by Tesla and Ford came as a surprise to many in the industry as EV prices have been steadily increasing over the past year or so. The costs of making the battery and some other parts of the EV are also steadily increasing, and so companies have had to increase their prices on some vehicles to absorb these rising costs. Supply chain constraints and rising commodity costs have contributed to higher prices.

The extent of the price cuts by Tesla also came as a surprise to many. Analysts agree that the move was an attempt to grab more market share. Tesla is already the number one seller of EVs in the US, but they have ambitions to sell even more vehicles. Tesla said it wanted to reduce prices enough to make many models eligible for a $7,500 federal tax credit to attract new buyers.

However, on February 3rd, the Treasury Department said it would relax its rules and classify cars like the Tesla Model Y and Ford Mach-E as SUVs, which should qualify most models for the federal tax credit, even at their original higher prices. It remains to be seen what impact this change will have on EV pricing. But Elon Musk has been clear that reducing prices is a priority for Tesla.

“Price really matters. I think there’s a vast number of people who want to buy a Tesla car but can’t afford it. These price changes really make a difference,” he said.

Elon Musk

Tesla has the scale and the flexibility in their operating margins to make bigger cuts on their vehicles. So when they cut 20 percent off a vehicle, it doesn’t automatically mean they are losing a lot of money on these vehicles. However, Ford is in a different situation. Although it is the number two EV seller in the US, it still lags far behind Tesla in market share. A competitor like Ford, with smaller margins, might be losing money on their vehicles when they cut prices.

Ford made its first all-electric SUV a Mustang, and a Ford executive last year said that the Mach-E was losing money because of the rising costs around the battery, which is the most expensive part of the EV. “You’re going to see pressure on the bottom line when we launch our EVs, they’re not going to be positive,” he said. “We’ve said that.”

Ford said it was able to reduce prices on the Mach-E because its supply chain is more efficient now and production costs are coming down. They are clearly chasing Tesla and have a large gap to make up. With their recent response, it’s clear that they think it’s important to be competitive with Tesla on the pricing front.

For companies like GM and Volkswagen, there has been no action so far. They have been saying that they see the price cuts but don’t think it’s necessary to adjust their pricing. They have high demand at their current prices and that’s that.

Some analysts have called Tesla’s price cuts an attempt to start competing with other automakers in the electric vehicle market. The company has stated that the new prices will allow them to make electric vehicles more accessible to a wider range of customers, making sustainable transport more affordable.

This is not the first time that Tesla has made changes to its pricing strategy. The company has been known to adjust prices frequently, depending on demand, production costs and other market factors. In the past, Tesla has also used price cuts to stimulate demand for its vehicles and to help clear out inventory.

Despite the price cuts, the demand for Tesla’s electric vehicles remains strong. The company has a loyal following of customers who are drawn to its innovative technology, stylish design and commitment to sustainability. Many of these customers are willing to pay a premium for Tesla’s vehicles, even in the face of price cuts.

However, some experts have expressed concerns about the sustainability of Tesla’s business model, particularly in light of the company’s recent expansion into new markets. They argue that Tesla’s reliance on government subsidies and tax credits, as well as its reliance on consumer demand, could leave the company vulnerable to economic downturns or changes in consumer preferences.

Despite these concerns, many investors and analysts remain optimistic about Tesla’s future prospects. They point to the company’s growing market share, strong brand recognition and commitment to innovation as key factors that will continue to drive the company’s success in the coming years.