The electric vehicle market has seen cutthroat competition with different car manufacturers fighting to win drivers over to their brand. Recently, Ford has tried to cut its prices on the electric Mustang Mach-E along with other models to compete with Tesla’s pricing power. However, the impact this price competition will have on profitability has shareholders concerned.
Tesla has recently been accused of “weaponizing” its price cuts to get ahead of its competition from traditional car manufacturers such as Ford, Chevrolet, and General Motors who are leveraging their existing brand equity and profitability to gain position in the electric vehicle space.
Zero Hedge reported:
Tesla’s move to squeeze competitors by sacrificing some of its strong operating-profit margins is a desperate attempt to increase sales but also roiled the secondary market for used Teslas.
Meanwhile, dealers who sell Teslas from their used-car inventory say valuations on some models fell by several thousand dollars following this month’s price cut. In the first 17 days of January, prices of 2020 model year or newer used Teslas were down about 25% from their peak in June of last year, about double the rate of the industrywide drop during that same period, according to Edmunds. –WSJ
One example of the price cut was the Model Y, now priced at $53,000, down from about $66,000. And if buyers qualify for the federal tax credit, they can loop off another $7,500.
In recent years, Tesla has dramatically increased its profitability after years of losses. In contrast, most traditional auto manufacturers have razor thin profit margins or even lose money on their electric vehicle lineups. This gives Tesla a very advantageous position in the EV market to cut prices and gain a strategic position as a cost leader.
However, Ford responded with its own price cuts and vow to increase production of its EV’s.
Ford announced in an official corporate communication:
With its new EV supply chain coming online, Ford is significantly increasing production of the Mustang Mach-E this year to help reduce customer wait times and to take advantage of streamlined costs to reduce prices across the board, making Mustang Mach-E even more accessible to customers and keeping it competitive in the marketplace.
The production increase is a key part of the Ford+ Plan, underscoring the company’s commitment to lead the EV revolution by increasing the value of its EVs for customers, continuing to position Mustang Mach-E as a compelling option for those looking for an electric SUV, and growing market share. Ford already offers EV customers a full-size truck, SUV and van – and has secured the batteries and raw material to scale production of all these models in 2023.
“We are not going to cede ground to anyone. We are producing more EVs to reduce customer wait times, offering competitive pricing and working to create an ownership experience that is second to none,” said Marin Gjaja, Chief Customer Officer, Ford Model e. “Our customers are at the center of everything we do – as we continue to build thrilling and exciting electric vehicles, we will continue to push the boundaries to make EVs more accessible for everybody.”
Following the announcement, Ford shares dropped as much as 3% in pre-market trading.
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