Editorial: Automakers should stay disciplined on EV pricing

This article was originally published HERE

Tesla is daring its rivals to revive a race to the bottom by slashing the prices of its popular electric vehicles. We urge legacy and new automakers to stay disciplined as they enter the EV market.

Tesla reduced the prices of its four vehicles last month after missing its 2022 delivery forecast as competitors entered the EV market. The EV maker delivered more than 1.3 million vehicles globally last year, up 40 percent from a year earlier, but it fell short of its 50 percent growth forecast.

Tesla cut the price of its top-selling, entry-level Model Y Long Range with all-wheel drive by 20 percent, or $13,000. Its strategy worked: Tesla’s price cut led to a surge in demand.

Tesla’s move — following a series of price hikes spurred by strong demand and rising mineral costs — rattled the EV industry. EV maker Rivian Automotive laid off 6 percent of its work force following the news. Ford Motor Co., whose two mainstream EVs are backordered, responded by dropping the price of its Mustang Mach-E crossover by as much as $5,900. The automaker said it will increase production to solidify its status as the No. 2 EV maker in the U.S., behind Tesla. According to Ford, the Mach-E is not yet profitable.

Volkswagen Group and General Motors have no plans to reduce prices of their EVs. VW CEO Oliver Blume said VW aims to become a global EV leader through profitable growth.

For decades, automakers chased market share for boastful reasons. During the pandemic when low inventory led to high vehicle prices, many automakers promised to continue their pricing discipline long term. Doing so could increase trust among consumers and give dealers more consistent profits.

Discounts driven by competition breed distrust among consumers who purchased a vehicle for thousands of dollars more months or weeks earlier.

Tesla has been a pioneer in the EV space. As one of the only EV makers for years, the company has achieved significant scale, brand appeal and supply certainty. Legacy automakers cannot say the same about their EV businesses. They are still in the unprofitable ramp-up phase. They would not cut into profits by reducing EV prices; they’d be adding to losses.

Tesla is using its advantages in the EV market; if others aren’t careful, Tesla could hurt their entry.

Legacy automakers should remember lessons from the past. New entries should learn from their experience. Finishing near the top can come at a damaging price.