Jim Farley, the CEO of Ford Motor Co., warned that rival Tesla Inc. might launch a pricing war and convert some electric vehicle models into commodities. It lowered prices for the second time in a month this past week.
Tesla’s moves for ensuring growth are “completely rational and should surprise no one,” Farley stated at some charity event in Detroit. He further commented, “Price wars are breaking out everywhere. Who’s going to blink for growth?”
The Plunge of Tesla Stock
The most recent reduction harmed Tesla’s margins, which caused the stock to plunge. They are also felt throughout the automotive sector as venerable firms struggle to catch up to the electric automaker. Rivals who don’t have as well-developed supplier networks and vehicle production as Tesla face difficulties due to price reductions.
Farley continued by claiming that Elon Musk, the CEO of Tesla, is employing Henry Ford, the founder of Ford, who lowered the Model T’s price in half to protect market share. Farley claimed that Chevrolet was still passing on him.
The other issue is that Tesla risks making the most popular-sized vehicle in the market a commodity by lowering the price of mid-sized crossover SUVs. Ford already lowered the cost of its Mach-E electric crossover to match the savings offered by the Austin, Texas-based automaker. Tesla’s Model Y competes with the Mach-E.
Since its premiere in April 2022, Ford has increased the price of its electric Lightning Pickup, for which Tesla has no direct competitors, by 50% to $60,000.
According to Farley, the secret to avoiding price wars is to offer goods that face little to no competition. Ford is already working on the second generation of its electric F-Series truck. It will be produced in a new Tennessee factory by the middle of the decade.
Cost Pressure
According to Bloomberg News, due to a decline in demand, Tesla reduced the price of all models by around 20% this year. Additionally, it is increasing manufacturing at facilities in Austin and Berlin, giving it additional inventory to offer.
Musk said he would continue to pressure prices during the company’s results call and prioritized sales volume over profit margins.
He told analysts that their perspective is that it is more appropriate to aim for a greater number of sales and a larger collection of vehicles rather than fewer sales with higher profits.
After the business reduced the price of its electric vehicles in January and March, Tesla’s operating margin decreased to 11.4% in the first quarter, a nearly two-year low. Musk claimed he’s okay with generating less money per vehicle sold.
