A Tesla showroom is seen in the City Center shopping mall on January 17, 2023 in Washington, DC.
Anna Money Maker | Getty Images
Detroit – Tesla Cars in the US are seeing massive price cuts, and this is proving to be a double-edged sword for the electric car industry and the major auto industry.
Tesla earlier this month slashed the prices of its new cars by up to 20%, making the cars more affordable and potentially eligible for federal tax credits. But it also lowers the resale values of cars for existing owners and sends ripple effects through the auto industry.
CEO Elon Musk didn’t directly address the price cuts, which contradicts his claims that the company’s cars will value assets — a rarity in the market aside from classic cars and collectible vehicles.
Analysts say the price cuts indicate that Tesla is prioritizing sales over profits, which indicates a demand problem.
“There’s a weakness in demand, and they want to improve their sales — or it’s a market share grab,” said Michelle Krebs, executive analyst at Cox Automotive.
For the industry at large, Tesla’s price cuts pressure other automakers to offer more affordable electric cars despite rising commodity costs, create chaos for used-car retailers who will need to write down vehicles and worry Wall Street about the first electric-vehicle pricing war amid recession fears.
Tesla’s price cuts make all other electric vehicles f [internal combustion engine vehicles] “It looks incrementally more expensive, narrowing margins and sending a chill into the used-car market,” Adam Jonas, an analyst at Morgan Stanley, wrote in an investor note on Friday.
Automakers change the prices of new cars regularly. This is usually done through incentives or when a new typical year comes around. But adjustments, up or down, have historically been small to avoid upsetting the automotive ecosystem for both consumers and car dealers.
Musk predicted such a move last month in predicting a recession later this year.
“Do you want to increase unit size, in which case you have to adjust prices downward? Or do you want to grow at a lower rate, or stabilize?” Musk said Dec. 22 during a conversation on Twitter Spaces. “My bias is to say let’s grow as fast as we can without putting the company at risk.”
Tesla is scheduled to report fourth-quarter earnings Wednesday after the market closes.
When the price of a new car drops, the value of used models is affected as well. In Tesla’s case, some of the new models were going for nearly the same price—only thousands of dollars—as their used counterparts. This poses a problem for current owners as well as used car retailers and Tesla, which sells used models directly to consumers.
In the first 17 days of January, Edmonds reported that used prices for 2020 or later model Teslas fell to an average price of $58,657 — 24.5% from the June peak of $76,626.
Tesla stock performance over the past year.
Cars.com reports used car prices on the consumer shopping site are down 3.3% for the Model Y and Model 3 as owners try to maintain resale prices despite discounts on new cars.
“Tesla’s price cuts are going to affect consumers very differently depending on which side of the news they sit on,” said Evan Drury, Director of Edmunds Insights.
On the one hand, Tesla owners have complained to the billionaire CEO and owner of Twitter Musk on the social media platform that price cuts reduce the value of their cars. In China, where price cuts took effect earlier than in the United States, protesters reportedly gathered at company showrooms and distribution centers demanding discounts and credits.
New Tesla buyers who missed out on the new price cuts petitioned Musk and the company to make it complete. They sought free and premium driver-assist upgrades, free supercharging and other positives to offset the higher price tags.
At the same time, Cars.com and Edmunds both reported interest and searches for Tesla vehicles since the cuts.
carmaxInc., the nation’s largest seller of used cars, quickly sold hundreds of Teslas after a price realignment. It had only about 150 Tesla cars for sale as of Tuesday, down from the hundreds before the company slashed prices.
“We continually adjust retail auto pricing in real time to match market conditions and offer competitive pricing,” Joe Wilson, CarMax’s chief operating officer, said in an emailed statement. “As such, we have adjusted prices to respond to market conditions related to new car price reductions and this has been received positively from consumers looking to purchase a used Tesla.”
Wall Street analysts have been largely positive about the Tesla cutbacks as a sales boon.
Tesla has enjoyed a much higher profit margin on its electric vehicles than traditional automakers. Its software offerings and subscriptions, including advanced driver assistance systems and in-car Wi-Fi, can help mitigate expected profit losses due to recent price cuts, as can tax credits for electric vehicles.
In addition, price cuts pressure other automakers, or OEMS, to lower the prices of their electric cars.
“Most original equipment manufacturers are currently losing money on EVs, and these price cuts will likely make business more difficult, just as they are trying to ramp up production of their vehicle offerings,” John Murphy, a securities analyst at Bank of America, wrote to investors earlier this month. electrical”.
Gerald Johnson, general motors’ The global manufacturing chief, said Tesla’s cuts don’t change the company’s plan to manufacture electric vehicles. The automaker currently sells Chevy Bolt EV models under $30,000—among the most affordable in the industry—as well as pricier models on the new battery system.
“We believe we have an EV for every price segment and every market segment that we’re putting out here,” Johnson said Friday during an event in Flint, Michigan. He said Tesla’s price cuts suggest the cars “may have been overpriced to begin with”.
GM cut prices of its Bolt models by thousands of dollars last year, only to recently raise them by hundreds of dollars, citing industry pricing pressures.
CNBC channel Laura Kolodny And Michael Blum Contribute to this report.
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