Some see it as the beginning of the final battle that has been awaited for years. For several days now, the American car world has been under the spell of a burgeoning price war, which is posing a difficult decision for manufacturers: to go along with Tesla’s price reduction or not?
Earlier in January, Tesla, Elon Musk’s electric car pioneer, slashed prices on some models by as much as $13,000, in some cases as much as 20 percent. At first, this was widely understood as an attempt to boost disappointing sales figures – but in the days that followed, some realized that Tesla might be squeezing out competitors.
Tesla has a relatively high profit per car, because it has been building electric cars for quite some time and can therefore do so efficiently. This does not apply to many competitors such as Ford and General Motors: they have only been building electric cars for a much shorter time and therefore have higher costs. Some car manufacturers even run a loss on electric models. What if Tesla was unleashing a price war that it can handle best?
That seems to be happening now. On Monday, Ford cut prices on the Mach-E, which competes directly with Tesla, to 8.8 percent. The group clearly concluded that it could not be left behind. “We are not going to give up territory to anyone,” said top manager Marin Gjaja to the Financial Times (FT). Depending on the model and, for example, the type of battery, the price reductions can amount to thousands of dollars.
The consensus among analysts was that Ford will cut margins considerably, because it does not want to lose market share. Analyst Dan Ives of Wedbush spoke to the FT of an “arms race” in the electric car world. Adam Jonas of Morgan Stanley (who is also known as a Tesla fan) wrote in a note on Tuesday that other car brands such as GM and Volkswagen (Audi, Skoda, Seat) will follow his assessment.
Holding back
The two are still holding back so far. GM is still sticking to a strategy of slowly bringing electric models to market. Volkswagen CEO Oliver Blume said last weekend against the Frankfurter Allgemeine Zeitung that he had no intention of lowering prices of electric models in the US: he believes in “the strength of our products and brands”. That was before Ford decided to lower prices.
Renault also announced after Tesla’s price reductions that it would not do anything for the time being. It called for this against the German Automobilweek a notable reason: Existing customers would soon feel ripped off if a model they had bought suddenly became thousands of euros cheaper. That is ultimately not good for your customer loyalty.
This is indeed something that also seems to play at Tesla. Soon after the price reductions reported The Wall Street Journal that some Tesla owners were disappointed. A petition has now been started by some of them to get free new software updates for the cars.
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