Tesla Wants to Start an EV Price War

(Photo Credit: Jeremy Buckingham/Flickr)
(Photo Credit: Jeremy Buckingham/Flickr)

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First, Elon Musk offered the coveted blue checkmark to the masses, now he’s basically handing out Tesla Model Ys.

The leading electric vehicle company is slashing the price of its baseline SUV to below the average price of a new vehicle. It’s the latest shakeup in the EV race and a signal that Musk is going for downmarket share.

Pricing Grand Prix

The Model Y — a crossover SUV — led all EVs in domestic sales last year, moving some 243,000 units to customers (in second place was Tesla’s Model 3, at roughly 200,000, while Ford’s Mustang Mach-E and the Chevy Bolt came in a distant third and fourth at roughly 39,000 a piece). In what can only be described as an electric U-turn, Tesla is making one of the most dramatic price cuts on a mass-produced vehicle in modern history. The Model Y’s cheapest tier will now retail for $46,990, down from $52,630, some $759 less than the average US price of a car or truck. Just last summer, the Model Y cost nearly $20,000 more than the average automobile.

The price slash coincides with Tesla’s first-quarter earnings report, which revealed that gross profit margins, excluding regulatory credits, had fallen from around 21% in the quarter to below 16%. Musk told investors the company is “pushing for higher volumes and a larger fleet… versus a lower volume and higher margin.”

Analysts aren’t in love with the move — Wedbush Securities analyst Dan Ives wrote in a note last week that “margins are now a delicate issue that are keeping Tesla investors up at night” — though the US price changes appear in line with the company’s global strategy. Now, there’s something of a price war brewing:

  • After Tesla lowered prices in Europe, Renault’s CEO last week told reporters that the cuts present “a challenge” and that the company is now “analyzing [its] positioning market by market.”.
  • Ford CEO Jim Farley, meanwhile, said last week that Tesla’s price reductions are “completely rational,” and added “Price wars are breaking out everywhere. Who’s going to blink for growth?”

Bolted: It appears the first EV maker to blink was General Motors, which announced during its first-quarter earnings report on Tuesday that it would end production of its mass-market Chevrolet Bolt by the end of the year. GM will pivot its focus to producing electric Chevy Silverado and GMC Sierra trucks before sunsetting the Bolt, which was the cheapest EV on the market.

Made in China: Fittingly, sources told Reuters on Monday that Tesla is preparing to sell Model Ys produced in its Shanghai factory to Canadian customers later this year — marking the first time the EV kings will ship cars from China to North America. The Shanghai plant is Tesla’s most cost-efficient. Between cheaper production and less competition, no wonder Elon is moving to make Tesla Model Ys the Ford Focuses of EVs.