As Tesla CEO Elon Musk has announced that he’s willing to sacrifice margins for growth as the company continues to realign itself within the industry, the news will make mainstream automakers nervous as many of their own EV offerings are still in their infancy.
The strategy was put into motion by six separate price cuts across Tesla’s model range in the first quarter of 2023. Although the company ultimately raised prices for its Model S and Model X models by some 2–3 percent, following its biggest stock slide since January 3rd, on an earnings call with investors, Musk reiterated the company’s prioritization of volume over profits. “We’ve taken the view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and a higher margin,” he said.
Tesla’s new strategy takes it out of the fight with car makers such as Mercedes-Benz, who have expressed an interest in moving further upmarket where margins are consistently higher. Instead, Musk’s new move will put the likes of Ford and Volkswagen on notice, with mainstream automakers already having cut prices to compete with Tesla — some of whom are believed to be already operating on thin EV profits as it is.
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Ford CEO Jim Farley confirmed as much, claiming that “price wars are breaking out everywhere,” reports Bloomberg. With the Model Y down by some 29 percent since the end of 2022, the Blue Oval has had to make similar downward revisions to its competitor, the Mustang Mach-E. The Mach-E already has had $4,500 knocked off it, and Ford has predicted that its EV unit will incur a loss of $3 billion in 2023.
However, Tesla’s move to push cars out the door won’t be without its risks. The company is putting its brand equity on the line that it has spent years building up. Moving out of the premium price bracket risks sacrificing brand perception and social status — two crucial factors for those at the upper end of the market.
