Tesla appears to have waged war in an increasingly competitive electric vehicle market, with big traditional players and emerging EV startups aiming for a piece of the action. The U.S. electric carmaker recently cut the price of its vehicles by 30% in global markets to boost its slumping sales. In this strategy, Tesla is using its high profitability as a weapon. The car brand boasts sky-high profit margins, which have allowed it to slash prices in a way that other EV makers are not in a similar position. Reuters reported that Tesla is using this advantage to maintain its dominance in the global electric vehicle market.
The report further noted that Tesla CEO Elon Musk has used the car company’s superior profitability as a weapon to launch an electric vehicle price war that could have major ramifications for other manufacturers in the space. It claims that Tesla can earn several times more revenue from the sale of a single car than major auto brands such as Volkswagen, Toyota or Ford.
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A Reuters analysis shows Tesla’s per-vehicle gross profit of $15,653 in the third quarter of 2022, more than double that of Volkswagen and four times that of Toyota. Plus, that’s five times Ford’s profit per vehicle. Tesla’s business model is markedly different from other major auto brands, which opt to sell directly, while other automakers operate through dealerships.
That means they’re not exactly comparable, since other car brands are responsible for paying dealers a portion of their revenue, while Tesla doesn’t have to. However, the high profit margins brought about by lower production costs have undoubtedly allowed it to announce successive price cuts in recent months. These price cuts are likely to translate into more orders and continued expansion of the brand. At the same time, the strategy could put other manufacturers in a bind, depending on their chances of lowering prices.
Tesla’s estimated order backlog continued to decline sharply in the second half of last year, with fewer than 100,000 EVs by the end of December 2022. The automaker’s push to increase production will help it roll out more cars and shorten wait times for its customers.
First published date: Jan 22, 2023 at 09:33 AM CST