After years of dominance in the booming electric vehicle (EV) market, Tesla’s competition is on the rise. Legacy US automakers are taking market share from EV giants in North America, and Chinese company BYD is now the top seller of EVs in the world. But Elon Musk and company are fighting back, and may have just started a “major EV price war” in the process, according to Wedbush technology analyst Dan Ives.
Tesla slashed the prices of some of its most popular vehicles by up to 20% in mid-January, prompting Ford to respond with a 6% to 8% price cut on its all-electric Mustang Mach-E this week. Ives, a longtime Tesla bull, believes Tesla’s price cuts will force other EV makers into “the same move” as they scramble for market share in February.
“There is a window of opportunity to gain stock … and 2023 is a crucial year that will create winners and losers in this EV landscape,” he wrote. “It’s now or never for Ford, GM, and others.”
A price war over market share?
A price war in the auto industry is coming, according to Ives, but it’s not because of falling demand — it’s all about market share. Ives said Ford, GM, and European automakers believe that if they lose EV customers, they may lose them forever because of Tesla’s Apple-like brand loyalty, so they are being aggressive with price cuts.
“It’s the Apple iPhone concept that Steve Jobs built Cupertino around….after consumers buy an iPhone they will stay in the Apple ecosystem going forward. “Tesla and Musk are building the EV castle and revolutionizing the automotive industry by getting a unique brand of customers and loyalty for their cars that is the main recipe for success,” he said.
Ives went on to argue that Musk’s EV giant has several key advantages — including EV production scale and superior battery technology — that could prevent legacy car price cuts from having the desired effect. Ford and GM must use aggressive price cuts to boost sales, even if it means sacrificing margins, according to Ives.
But not every analyst believes a serious price war is imminent.
“At this juncture, we do not expect the industry to break out into an all-out price war that characterized the industry in the 2000s,” Bank of America analyst John Murphy wrote in a note on Friday.
Murphy said he was confused by the automaker’s latest EV price cuts, arguing that they fly in the face of executives’ comments about expected demand. Usually, price wars are caused by manufacturers trying to capture the growing demand, not gaining market share in the growing industry.
Murphy noted that Musk said in a recent press release that Tesla’s latest price cut has resulted in orders “almost doubling the production rate.” And Ford didn’t mention demand issues when it announced the cuts, citing the move to “reduce customer wait times” and offer “competitive pricing.”
“Cutting the price of EVs now seems illogical,” he said. “TSLA and Ford cited demand outstripping supply, meaning the price cut would be a direct hit to the bottom line now and not necessarily reduce future earnings power.”
While Murphy doesn’t see a price war coming, if there is one, he admits there are “significant risks” to the entire sector.
‘come out swinging’ competition
The good news is that GM’s latest earnings report revealed that demand for EVs remains strong.
GM grew revenue 28% year over year to $43.1 billion in the fourth quarter, beating analysts’ estimates of $40.65 billion. And the company was able to make $2 billion in net profit for the fourth quarter as supply chain problems disappeared.
“With all Street eyes focused on GM’s earnings this morning, the company came out swinging and delivered an incredibly strong performance on both the top and bottom lines, further indicating that demand is still strong and the shift to EVs is increasing,” Ives wrote.
GM did not cut jobs either, or prices, and even announced a $ 650 million investment to develop a lithium mine in Nevada with Lithium Americas this week. EV companies have sought to increase the supply of key elements like lithium used in the production of EV batteries.
“Demand for our vehicles remains quite strong – for our EVs and ICEs [internal combustion engine] portfolio,” said GM CFO Paul Jacobson Bloomberg after Tuesday’s earnings report. “Competition is no stranger to us. We’ve been in business for over 100 years and the team is really good at competing. And we’re seeing consumer demand for our vehicles at a strong price point, we just need to make sure we can produce to meet that demand.” .
Ives said GM’s “outstanding performance” is proof that demand concerns and supply issues are “a thing of the past,” calling it “bullish for the overall auto market.”
But critics of the EV industry believe that the global economic slowdown will eventually affect EV sales, and hurt Tesla stock in particular because it trades at a high value relative to its peers.
Gordon Johnson, CEO of GLJ Research, told fortune earlier this month that Tesla is valued as a “hyper growth” company, and usually cutting prices is not associated with hyper growth.
“We’ve been saying this all along, but no one wants to listen,” he said. “It’s just the car companies that can’t sell their capacity.”
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