Photo: Volvo
Tesla price cuts are seen as a way to conserve demand even as the profits are dwindling. Most competitors have followed Tesla with lower prices, but Stellantis and Volvo claim they don't need to. Meanwhile, Tesla faces a tough choice, with many considering that price cuts are the wrong strategy.
Tesla went nuclear on prices this year after a couple of years of constant price hikes. The move coincided with slow demand for its electric vehicles toward the end of 2022, so many were quick to connect the dots. Although Tesla can afford to sell its electric cars for less, considering its fat margins, this still presents a couple of problems. For once, its image as a luxury carmaker suffers. Tesla was perceived as the Apple of the automotive world. Still, the deep price cuts put it in the discount category with the likes of Chevrolet and Hyundai.
Another downside of price cuts is that used-cars value drops with every price decrease, making Tesla EVs less desirable. Nobody wants to buy a car with no resale value because the new models are cheaper. Finally, customers are getting the wrong signals following repeated price cuts. Many are inclined to postpone acquisition while waiting for the Tesla EVs to become even more affordable. All these make price cuts a short-term solution but will likely hurt Tesla's sales and image in the long run.
Even short-term, the price adjustments don't appear to work as intended. Cars continue to pile up in Tesla's inventory, with the Model X and Model 3 the slowest to sell. If things don't change course, Tesla must reduce either prices or production. The easiest to do is the former, as stopping production would likely affect suppliers and economies of scale. With fewer EVs sold, Tesla would have a smaller fleet to sell software subscriptions such as FSD and Premium Connectivity. Elon Musk has indicated that Tesla would rather sell cars at cost and make up for the lost profits from subscriptions than cut production.
Tesla price cuts have been followed by other carmakers, desperate to conserve market share. Ford and Volkswagen are among them, even though both companies are losing money on their EV business. GM has also announced that it would not lower prices, although it is in a unique situation. Its most-sold EV, the Chevrolet Bolt, is already selling for a rock-bottom price, being the cheapest EV in North America. The Ultium-based models in GM's lineup are only produced in limited numbers, with less than 1,000 units in the first quarter. There's little incentive to reduce prices when you can only build so many EVs.
The most bullish about keeping the prices untouched is Volvo, which saw a sale increase despite Tesla's moves. Volvo CEO Jim Rowan told Automotive News that Volvo has no reason to cut its EV prices as long as demand continues to be strong. Roughly 11 percent of Volvo's sales were fully-electric in the first quarter. Rowan has other reasons to be optimistic: lithium prices are in free fall this year, easing pressure on automakers.
Stellantis is another company that doesn't intend to respond in kind to Tesla's price cuts. Its CEO, Carlos Tavares, doesn't exclude lowering prices, but only in response to the general market movements, not Tesla's price cuts. In other words, if all other carmakers slash prices, Stellantis would have no choice but to lower them.
Another downside of price cuts is that used-cars value drops with every price decrease, making Tesla EVs less desirable. Nobody wants to buy a car with no resale value because the new models are cheaper. Finally, customers are getting the wrong signals following repeated price cuts. Many are inclined to postpone acquisition while waiting for the Tesla EVs to become even more affordable. All these make price cuts a short-term solution but will likely hurt Tesla's sales and image in the long run.
Even short-term, the price adjustments don't appear to work as intended. Cars continue to pile up in Tesla's inventory, with the Model X and Model 3 the slowest to sell. If things don't change course, Tesla must reduce either prices or production. The easiest to do is the former, as stopping production would likely affect suppliers and economies of scale. With fewer EVs sold, Tesla would have a smaller fleet to sell software subscriptions such as FSD and Premium Connectivity. Elon Musk has indicated that Tesla would rather sell cars at cost and make up for the lost profits from subscriptions than cut production.
Tesla price cuts have been followed by other carmakers, desperate to conserve market share. Ford and Volkswagen are among them, even though both companies are losing money on their EV business. GM has also announced that it would not lower prices, although it is in a unique situation. Its most-sold EV, the Chevrolet Bolt, is already selling for a rock-bottom price, being the cheapest EV in North America. The Ultium-based models in GM's lineup are only produced in limited numbers, with less than 1,000 units in the first quarter. There's little incentive to reduce prices when you can only build so many EVs.
The most bullish about keeping the prices untouched is Volvo, which saw a sale increase despite Tesla's moves. Volvo CEO Jim Rowan told Automotive News that Volvo has no reason to cut its EV prices as long as demand continues to be strong. Roughly 11 percent of Volvo's sales were fully-electric in the first quarter. Rowan has other reasons to be optimistic: lithium prices are in free fall this year, easing pressure on automakers.
Stellantis is another company that doesn't intend to respond in kind to Tesla's price cuts. Its CEO, Carlos Tavares, doesn't exclude lowering prices, but only in response to the general market movements, not Tesla's price cuts. In other words, if all other carmakers slash prices, Stellantis would have no choice but to lower them.
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