EV Price War Set to Escalate as Tesla Cuts Price Yet Again
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The price war in the electric vehicle (EV) industry might intensify as Tesla (NYSE: TSLA) has yet again lowered car prices in the US. The Elon Musk-run company has cut prices several times over the last year which has triggered an industrywide price war.
After this round of price cuts, Tesla’s website lists the starting price for the Model 3 at $38,990 while the Model Y at $45,990. After these price cuts, Tesla has lowered the prices of the Model 3 standard version by almost 17% in the US since the beginning of the year.
Tesla cuts vehicle prices
Notably, Tesla cut prices in January days after its Q4 2022 deliveries missed estimates. It missed delivery estimates in Q1 but posted better-than-expected deliveries in Q2. However, it delivered 435,059 cars in Q3 which trailed the 459,949 vehicles that analysts polled by LSEG (formerly Refinitiv) expected.
Notably, it was the first sequential fall in Tesla’s deliveries in over a year. In its release, Tesla said, “A sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call. Our 2023 volume target of around 1.8 million vehicles remains unchanged.”
TSLA missed Q3 delivery estimates
To be sure, the company forewarned about a planned production outage and its then CFO Zach Kirkhorn said during the Q2 earnings call, “we don’t know exactly the number of cars impacted because, you know, kind of the way that we go into downtime windows for upgrades is, you know, we set aside a period of time, but then the team is challenged to go as quickly as possible so that we can get the factories up and running again and minimize that. So, it’s not — it’s not profound reduction.”
Meanwhile, the price cut announcement has come a few days after the Q3 delivery report. To be sure, Musk has been quite vocal about the fact that Tesla would prioritize vehicle sales even at the cost of sacrificing short-term profitability. The EV giant’s operating margins are already down to single digits and have fallen by more than half from their peak last year. The company said, “We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin.”
TSLA’s margins fall amid price cuts
Tesla meanwhile believes that it can make up for lower margins through sales of autonomous technology. During the Q1 2023 earnings call, Musk talked up the company’s software capabilities and said, “We’re the only ones making cars that, technically, we could sell for 0 profit for now and then yield actually tremendous economics in the future through autonomy. No one else can do that. I’m not sure how many people will appreciate the profundity of what I’ve just said, but it is extremely significant.”
The company currently charges $12,000 for its FSD (full self-driving) subscription and Musk believes the price will eventually rise to as high as $100,000. Notably, Tesla raised FSD prices by $5,000 in 2022 but cut prices by $3,000 last month.
Tesla has set itself a target of producing 20 million cars annually by 2030. To put that in perspective, Toyota, the world’s largest automaker, sold just over 10 million cars in 2022.
Tesla is targeting 20 million production capacity
To achieve the goal of 20 million deliveries, which amounts to a CAGR of over 41% between 2023 and 2030, Tesla might need to build many more Gigafactories. In the past, Musk said that the company would need over a dozen Gigafactories to reach that goal.
At the annual day, Musk said that the company can sell 5 million units of the two new models. Additionally, he said that it can deliver upto half a million Cybertrucks.
During the Q2 2023 earnings call Musk talked about the revenue opportunity from robotaxis and said, “In the long term, Autonomy, we think, is going to just drive volume through the ceiling next level and – and our sort of future robotaxi products — dedicated robotaxi products, we think, have like quasi-infinite demand. So, we’re — the way we’re going to manufacture the robotaxi is also itself a revolution. So, it’s a revolutionary design made in a revolutionary way. It’ll be, by far, the highest units per hour of any vehicle production ever.”
Autonomous cars
In response to a question on Tesla’s gross margins, Musk said, “The short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy will make all of these numbers look silly.”
He added that the current full self-driving (FSD) price of $15,000 is on the lower side. Musk also said, “I know I’m the boy who cried FSD, but man, I think — I think we’ll be better than human by the end of this year.”
During Tesla’s Q4 2022 earnings call, Musk said that he is “convinced” that Tesla would one day become the most valuable company globally. During the Q3 2022 earnings call, Musk predicted that Tesla’s market cap would one day surpass the combined market caps of Apple and Saudi Aramco.
Musk flaunted manufacturing prowess as its real competitive strength. He added that the company is developing other products also. He however said, “We’re not going to announce them, obviously, but they’re very exciting. And I think it will blow people’s minds when they — when we reveal them.”
Tesla is the most valued automaker
Musk never shies away from such exorbitant claims. Recently, he slashed Twitter’s valuation by over half to $20 billion but predicted that the social media company’s valuation could rise 12-fold to $250 billion.
That said, to his credit, under Musk’s watch Tesla has become the most valued automaker globally, and in 2021 its market cap surpassed $1.2 trillion.
It not only became the first automaker to have a market cap in excess of $1 trillion but at that time Tesla’s market cap was ahead of the combined market cap of all leading automakers.
