2023-04-14 23:34:44
Electric vehicle (EV) manufacturers are cutting prices in what appears to be a race to the bottom. This will probably end when these manufacturers lose money on each unit.
The leader in the cost-cutting frenzy is Tesla. It produced and sold 400,000 cars in the first quarter. Ford and GM each produced fewer than 20,000 electric vehicles.
When a new electric car buyer thinks of a model, the first thing that comes to mind is a Tesla. And Tesla knows it.
Tesla wants to keep his huge advantage. One way he plans to do this is to keep the price of his cars well below those of the competition. Plus, you can leverage a brand that is among the most valuable in the world to maintain your visibility as a market leader.
Tesla has cut prices in Europe, Israel and Singapore. It has already taken the step in China and the United States, its main markets. In the United States, it has cut prices five times since the end of last year.
Tesla CEO Elon Musk is making a sensible but risky move. If sales increase at a steady and reasonable rate, Tesla can sell 2 million cars a year.
That will happen as long as most of your competitors are selling tens of thousands of units a year.
Some large manufacturers have not sold a single electric vehicle. And these companies are spending billions of dollars to get a market share they may never have.
They may end up competing with each other more than Tesla. Tesla’s advantage is too great to want to try to compete with them directly.
Critics continue to claim that Tesla shares are too expensive, given the competition risk. But that does not keep shareholders or new investors away.
Its market capitalization is $589 billion dollars. GM, the largest automobile company in the United States, has a market capitalization of $48 billion. So far away.
Tesla’s shares are up 45% this year, while GM’s are up 2%.
Tesla’s earnings over the next quarter or two will show whether the price cuts were a wise financial decision.
Its market share over the next year will show if it’s been a good long-term move, even if its financial results aren’t stellar.
I don’t think any manufacturer will hurt Tesla in the near future. Tesla has a huge following that continues to add daily and is already a cult automaker, no matter who comes following it.
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