- Tesla and Ford are battling for market share by dropping their electric car prices.
- Other automakers like GM and Volkswagen say they won’t engage in that kind of price war.
- A pricing battle could accelerate EV adoption, but automakers will have to sacrifice profits.
When Tesla dropped the prices of some of its most popular models in early January, the news shocked the industry. It goosed demand for Teslas and threatened rivals already trying to catch up to Elon Musk’s market share.
Ford went next, lowering the price of its Model Y competitor, the Mustang Mach-E, by up to $5,900.
Other automakers are holding steady: General Motors and Volkswagen executives have recently said they don’t plan to drop prices for their EVs.
Even without full participation, a pricing battle might be good for the auto industry’s $1.2 trillion push into electrification through 2030 — and for the folks supposed to buy all those battery-powered cars.
“Anytime you have competition in the space,” said Ed Egilinsky, managing director at financial products firm Direxion, “that could represent some pricing pressures which is not as great for the automakers, in the short term as much as it is for, potentially, the consumer.”
GM doesn’t plan to participate in the price war and drop the cost of its EVs, like the Cadillac Lyriq.
Wade Payne for General Motors
With cheaper EVs come cheaper EVs
Despite automakers’ efforts to lower costs, EVs are too expensive for most people, selling for an average of $61,448 in December, per Kelley Blue Book.
Today’s pricing war (coupled with new federal EV tax credits) could boost demand, helping automakers to boost volume, further helping with cost.
“Scale will contribute towards parity in price,” said Steve Patton, EY Americas mobility sector leader. “We need to build more EVs and batteries before we get the prices down.”
This week, both Ford and GM mentioned plans to up EV production this year, though Ford is more ambitious than GM. More demand brought on by price cuts could accelerate those plans.
“Scale ultimately is what’s going to drive down those costs,” Ben Prochazka, executive director of the Electrification Coalition, told Insider early January. “That’s what’s going to make it so that this is a market that becomes accessible to everyone.”
Ford’s recent Mach-E price cuts mean the company will deprioritize profitability, for now.
Photo provided by Ford Motor Co.
The problem lies in profitability
But Tesla and Ford’s price cuts mean they’ll deprioritize profitability for the time being, and that worries industry analysts.
The cuts “highlight the conundrum facing automakers of improving the profitability of electric vehicles by increasing production volumes in a competitive marketplace,” Rene Lipsch, Moody’s vice president and senior credit officer, said in a statement.
The cuts also could “prolong Ford’s timeframe for a meaningful contribution from its electric vehicle offering to profitability,” Lipsch added, “and underlines the need to reduce vehicle costs through lower battery costs and manufacturing efficiencies, in addition to higher production rates.”
Bank of America analysts called the automakers’ moves “odd” in a Monday note.
Both companies “are citing demand that exceeds supply, which means that cutting prices would be a direct hit to the bottom line today and unnecessarily degrades future earnings power,” the note said. “The current EV price cuts appear to defy logic… This will make the unprofitable low-return EV business that much more challenging until massive scale is achieved.”
Consumers are unlikely to be so upset, as they stand to benefit at the automakers’ expense, Garrett Nelson, senior equity analyst at CFRA Research, told Insider via email.
“We view the price war as being good for consumers and it should help with overall EV sales and adoption,” Nelson said. “We don’t think it will be a good thing for automakers because it will further pressure margins on EVs.”