Tesla Inc. has entered a new era: one in which Elon Musk keeps various auto execs up at night while others rest a little easier. In the decade since the launch of the Model S, Tesla has been stealing customers primarily from luxury automakers led by BMW and Mercedes-Benz. While Musk was ambitious to compete with mass-market manufacturers with the $35,000 Model 3, he ended up charging far more — first because of necessity to keep Tesla afloat, then because he and the wider industries are subject to production constraints.
This time last year, Musk turned on the wheels to change all that. Tesla opened two new factories, doubling the footprint of its auto factory. The bosses of Ford and Renault are now looking nervously in their rearview mirror as Musk is hell-bent on expansion and no longer cares about earnings.
“Price wars are everywhere,” Ford Chief Executive Jim Farley said at a charity event in Detroit on Thursday, days after Renault said it was working on positioning its models. “Who blinks for growth?”
Luxury automakers won’t be entirely immune to price pressures — Mercedes slashed stickers on its electric cars in China late last year, weeks after Tesla began cutting prices. But German executives have long insisted they are unwilling to follow Musk’s lead and sacrifice brand value for sales.
If anything, Mercedes-Benz Group CEO Ola Kallenius wants to push further upmarket, as the strategy has been paying off. The maker said late Thursday that first-quarter earnings were stronger than expected, driven by resilient pricing.
“Tesla isn’t just sacrificing EV margins to hit its sales targets. To some extent, it’s also taking what it has already established,” Bernstein’s European auto analyst Daniel Roeska wrote in a Thursday note. The goodwill and brand equity of the company are placed on the altar.” This is most important in the high-end market, where brand awareness and social status are the key to sales. “
Musk’s price cuts were huge and fast. In the U.S., Tesla cut the starting price of its best-selling Model Y sport utility vehicle by 29% in three months.
That’s a problem for Ford, which recently discounted its Mustang Mach-E SUV by an average of about $4,500 to stay competitive. While the automaker overtook General Motors Co. last year to become the No. 2 seller of electric vehicles in the U.S., it still lags far behind Tesla.
Because Ford lacks the economies of scale that Musk built up and invested heavily to catch up, the company expects to lose $3 billion in its electric vehicle business this year.
Renault plans to go further than Ford – not only separating its electric car and combustion engine businesses, but also planning initial public offerings for its plug-in car and software businesses. The head of the Renault brand called Tesla’s price cuts an obvious challenge earlier this week, and investors sold shares in the French company on Thursday despite strong first-quarter sales.
Responding to a few questions about the sustainability of the 42,000-euro ($46,000) sticker for the electric Megane E-Tech hatchback, Chief Financial Officer Thierry Pieton acknowledged that overall pricing could be “slightly softer” in the second half of the year. However, he said Renault did not intend to make any major changes.
“There’s not a lot of incentive to lower prices and get rid of residue and get into the vicious circle that some of the competition is following,” Pitton said.
First published date: April 24, 2023 at 09:51 AM CST