Musk’s Tesla price cuts could start a pricing war, Ford CEO says
Ford Motor Co. Chief Executive Officer Jim Farley said rival Tesla Inc. could start a price war and turn certain electric vehicle models into commodities after it cut prices for the second time in a month this past week.
Tesla’s moves to bolster growth are “completely rational and should surprise no one,” Farley said at a charity event in Detroit. “Price wars are breaking out everywhere. Who’s going to blink for growth?”
The recent cuts hurt Tesla’s margins, sending shares into a tailspin. They are also reverberating around the auto industry as long-established companies race to catch up to the electric carmaker. The price reductions create challenges for rivals, who haven’t established supply chains and vehicle production as advanced as Tesla’s.
Farley went on to say that Tesla CEO Elon Musk is using the Model T strategy employed by Ford founder Henry Ford, who cut the price of the Model T in half to protect market share. He was still passed up by Chevrolet, Farley said.
The other problem is that Tesla, by cutting prices on mid-sized crossover SUVs, could turn the industry’s most popular-sized vehicle into a commodity. Ford already reduced the price of its Mach-E electric crossover to match the Austin, Texas-based carmaker’s discounts. The Mach-E competes with Tesla’s Model Y.
Ford raised the price of its electric Lightning Pickup, for which Tesla has no direct rival, by 50% to $60,000 since it launched in April 2022.
Farley said the key to avoiding price wars is offering products that have little or even no competition. Ford is already developing a second generation of its electric F-Series truck that will be manufactured at a new factory in Tennessee by the middle of the decade.
Pricing Pressure
Tesla cut prices of all models by about 20% this year as demand has softened. It’s also ramping up production at plants in Austin and Berlin, which will give it even more inventory to sell.
On the company’s earnings call, Musk indicated he would keep pricing pressure up, saying he was prioritizing sales volume over profits margins.
“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,” he told analysts.
Tesla’s operating margin shrank to 11.4% in the first quarter, a roughly two-year low, after the company marked down its electric vehicles in January and March. Musk said he’s comfortable making less money on each car sold.