Tesla May Have Started a Price War, but Most Carmakers Aren't Willing To Fight

Tesla cut prices by more than 20% on select models 6 photos
Photo: Tesla
Tesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arenaTesla price cuts are a punch in the gut to all other players in the EV arena
In January, Tesla’s massive price cuts shook the auto market, and everyone expected a price war. Nevertheless, few carmakers can afford to follow Tesla into the ground. So far, Lucid and Ford are the only ones that have adjusted their prices in the U.S., although the latter confirmed that it would not make a similar move in Europe.
The price war that Tesla was supposed to start with its aggressive price cuts in January has not started yet. Sure, some Chinese carmakers have also lowered prices to compete in the local market, and we’ve seen a similar path in the U.S. to some extent. But the trend is much less obvious than analysts expected, and the much-hyped price war fizzled as spectacularly as it started. But why aren’t other carmakers interested in picking up the gauntlet?

This is indeed interesting, and there are several sides to the story. Lucid had no choice but to lower the Air’s prices, even though it is still far from breaking even at such an early stage in the production ramp-up process. It’s a painful decision, which might pay off in the long run unless Lucid runs out of cash sooner than it achieves profitability. It happened to the best, and even Tesla was once on the brink of bankruptcy. Others, like General Motors and Chrysler, have gone beyond that and still survived.

Ford is another story, though. The Blue Oval can afford to lose money on its EVs, thanks to a healthy ICE business. When it announced cutting Mustang Mach-E prices by up to $5,900 in the U.S., Ford was already losing money on it, as Marin Gjaja, chief customer officer for Ford’s EV unit, admitted to Automotive News. Ford is essentially buying market share, just like Lucid, hoping this would prove a good investment.

Legacy carmakers have no interest in lowering prices to sell more EVs

Nevertheless, Ford is already taking a step back, indicating that it isn’t going to get very far in following Tesla’s price cuts. The company announced that it is not lowering prices in Europe, which might be seen as an effort to limit losses. Legacy carmakers want to project the image of EV bulls to satisfy investors, but on the other hand, they are more than happy with the huge profits they get from selling ICE vehicles, as opposed to losing money on EVs.

This is what General Motors must be thinking too. The American giant just released its 2022 results, and CEO Mary Barra dismissed suggestions that GM should lower EV prices. Barra stated that GM has its pricing strategy right and doesn’t need to change much. On the other hand, the legacy carmaker has announced more investment in V8 engines while delaying a full ramp-up of EV production. GM may have unveiled a flurry of EVs, some quite affordable, like the Chevy Equinox EV. Nevertheless, production figures for its Ultium EV lineup are appalling, at less than 1,000 units in 2022.

Despite the old Chevy Bolt EV/EUV selling almost 40,000 units in 2022, it’s hard to take GM seriously when it comes to “surpassing Tesla,” as Mary Barra boasted a year ago. It’s not like GM doesn’t afford to play ball with Tesla. It has no incentives to do so. Selling more EVs would make GM lose more money, so there’s no reason to lower prices.

Volkswagen is different, though. It seemed quite happy to chase Tesla until the recent management change. It has a strong EV lineup and a dominating market position in Europe, while the U.S. EV production is in full swing at the Chattanooga plant. Nevertheless, CEO Oliver Blume has stated that he has no intention of lowering the prices of Volkswagen ID. vehicles. Like Barra, he insisted that Volkswagen has a clear pricing strategy focused on reliability.

It's open season for EV startups, and legacy carmakers will buy them at a bargain

Kia also announced that it is not lowering prices, which, at least in the U.S., might not be a good strategy. Korean carmakers are already disadvantaged under the Inflation Reduction Act tax incentives because their batteries are not made in North America. It will be hard to be competitive in the U.S. market past April 1, when IRS will enforce the raw-material origin rules.

It’s hard to tell which car company would have chosen the right strategy. We know that Tesla is more than capable of waging a price war, considering its fat margins. They will only improve over time, and Project Highland hints at a new manufacturing revolution. As such, Tesla will probably put more pressure on the automotive establishment in the coming years.

Most legacy automakers can still hold their ground if they choose to. Nevertheless, cutting EV prices and going all-in on EVs is not in their best interest right now, considering that their profits come from the ICE business. The biggest carmakers would probably be fine in the short and medium term, but they need to step up because their time is running out as markets increasingly embrace electric vehicles.

It’s a whole different matter with EV startups. We’re not sure how long these would be able to sustain losses in a price war with Tesla. Lucid is in a tight corner right now, and Rivian will shortly follow once Tesla launches the Cybertruck in mass production. The auto industry is in for a consolidation movement that we haven’t seen in our lives. I imagine legacy carmakers would soon want to “adopt” an EV startup to accelerate their EV uptake and have access to cutting-edge technologies. And given the current market trends, they might do it at a bargain.
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About the author: Cristian Agatie
Cristian Agatie profile photo

After his childhood dream of becoming a "tractor operator" didn't pan out, Cristian turned to journalism, first in print and later moving to online media. His top interests are electric vehicles and new energy solutions.
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