A Tesla showroom is seen at the City Center Shopping Center on January 17, 2023 in Washington, DC.
Anna Moneymaker | Getty Images
Detroit- Tesla The US is seeing significant reductions in vehicle prices, and it’s proving to be a double-edged sword for electric car makers and the larger automotive industry.
Tesla cut the prices of its new cars earlier this month up to 20making vehicles more affordable and potentially capable of federal tax credit, But it also lowers the resale values of cars for current owners and is sending ripple effects through the auto industry.
CEO Elon Musk Haven’t directly addressed the price cut, which is contrary to his claims that the company’s cars will appreciate in assets — a rarity for a market aside from classics and collectible vehicles.
Analysts say the price cuts suggest Tesla is prioritizing sales over profits, potentially indicating a demand problem.
“Demand is weakening, and they want to improve their sales — or grab that market share,” said Michelle Krebs, executive analyst at Cox Automotive.
For the industry at large, Tesla’s price cut pressured other automakers to offer more affordable EVs despite rising commodity costs, wreaking havoc for used vehicle retailers who are required to write off vehicles. Hoagie and Wall Street are concerned about the first EV pricing war. amid fears of a recession.
“Tesla cuts prices all other EV makes and [internal combustion engine vehicles] That looks incrementally more expensive, with margins compressive and sending a chill to the used car market, Morgan Stanley analyst Adam Jonas wrote in a Friday investor note.
Vehicle manufacturers regularly revise prices on new vehicles. This is usually done through incentives or when a new model year arrives. But adjustments, up or down, have historically been small enough to avoid upsetting the automotive ecosystem for both consumers and car dealers.
Musk foreshadowed such a move last month, predicting a recession later this year.
“Do you want to increase unit volumes, in which case you will have to adjust prices downward? Or do you want to grow at a lower rate, or remain stable?” Musk said on December 22 during a Twitter Space conversation. “My bias would be to say grow as fast as you can without putting the company at risk.”
Tesla is due to report fourth-quarter earnings on Wednesday after the market closes.
value used
When the price of a new vehicle drops, the value of the older model is affected as well. In Tesla’s case, some new models were going for roughly the same price — just thousands of dollars off — as their used counterparts. This is problematic for current owners as well as used vehicle retailers and Tesla, who sells old models directly to consumers.
In the first 17 days of January, Edmonds ReportUsed prices for 2020 model year or new Teslas fell to an average price of $58,657 — 24.5% from their June peak of $76,626.
Tesla’s stock performance over the past year.
Cars.com lists prices for used vehicles on the consumer-shopping website a 3.3% drop for the Model Y and Model 3 as owners try to hold the line on resale value despite reductions in new vehicles.
“The Tesla price cut will affect consumers quite differently depending on which side they sit on,” said Evan Drury, Director of Insights at Edmunds.
While Tesla owners complain to the billionaire CEO and twitter owner Kasturi’s price cuts on the social media platform devalue their vehicles. In China, where the price cut took effect earlier than in the US, protesters reportedly gathered at the automaker’s showrooms and distribution centers Demand for discount and credit.
Recent Tesla buyers who missed out on the latest price cut are petitioning Musk and company to make up for them. They’ve demanded free, premium driver-assistance upgrades, free supercharging and other pluses to offset their high price tags.
At the same time, Cars.com and Edmunds both showed interest in the report and searches for Tesla vehicles skyrocketed after the cut.
carmaxThe country’s largest seller of used vehicles quickly sold hundreds of Teslas after the price change. It only had 150 Tesla cars for sale as of Tuesday, hundreds less than before the company cut prices.
“We continuously adjust retail vehicle pricing in real time to match market conditions and offer competitive pricing,” Joe Wilson, CarMax chief operating officer, said in an emailed statement. “As such, we have adjusted pricing to respond to market conditions related to reductions in new car prices and this has been received positively by consumers who are looking to purchase a used Tesla.”
peer pressure
Wall Street analysts were largely positive on the cuts as a boon for Tesla for sales.
Tesla has enjoyed significantly higher profit margins on its EVs than traditional automakers. Its software and subscription offers, including its advanced-driver assistance systems and in-vehicle Wi-Fi, could help offset anticipated profit losses due to recent price cuts, as could EV tax credits.
Also, the price cut puts pressure on other automakers, or OEMs, to cut prices of their own EVs.
“Most OEMs are currently losing money on EVs, and these price cuts could make business even more difficult, just as they ramp up production of EV offerings,” BofA Securities analyst John Murphy wrote to investors earlier this month. trying to get.”
Gerald Johnson, General Motors’ The head of global manufacturing said Tesla’s cuts do not change the company’s manufacturing plans for electric vehicles. The automaker currently sells its sub-$30,000 Chevy Bolt EV Models – Most economical in the industry – as well as higher priced models on newer battery systems.
“We believe we have an EV for every price bracket and every market segment that we’re offering here,” Johnson said during an event in Flint, Michigan, on Friday. He said Tesla’s price cuts indicate that the vehicles “may be priced higher initially.”
GM cut prices Last year its Bolt models were slashed by thousands of dollars, but recently they have gone up by hundreds of dollars, citing industry pricing pressures.
– CNBC Lora Kolodny And Michael Bloom contributed to this report.