Tesla’s recent further price cuts should be taken as a “warning” for other automakers amid what some see as an “EV price war,” says Renault CEO Fabrice Cambolive.
Since the start of the year, Tesla has adjusted its pricing many times, including two significant price drops across its entire lineup.
The aggressive price drops have led other automakers to reduce the prices of their electric vehicles – leading some to believe that Tesla might have started a price war.
Following the most recent price drop in Europe last week, Fabrice Cambolive, the head of the Renault brand, said that he believes automakers should take Tesla price cuts as a “warning” (via Reuters):
It’s clear that (Tesla cutting prices) is a challenge, starting with the cost side of things. It’s a warning that we are looking at.
Renault has slightly discounted its electric Megane, leading to a surge in sales in March, but the price reductions weren’t as deep as Tesla’s.
Nevertheless, the CEO said that it is looking at the price of its electric vehicles “market by market” for potential adjustments:
We will analyze country by country, market by market, which level of competitiveness we need to have to stay in the game.
Top comment by Preston
Is Tesla intentionally starting a price war? Maybe, but I don't think so. Most people think they're dropping prices to ensure that they can sell every vehicle that they can produce. They want volume more than margins. If they were lowering prices specifically to harm other EV makers, then it would be an intentional price war. While the effect is the same, Tesla probably hopes to attract would-be ICE buyers to their cars more than buyers of competitor's EVs (though they really just care about selling their cars).
But in any case, when one vendor lowers prices, and others have to lower their prices to compete, you have a price war. And when most vendors are selling at a loss or break-even to start, it's a very painful one for them.
Legacy automakers are in a big bind. Their EVs cost more to produce than Tesla's and they have huge debts (automakers are among the most indebted companies in the world). They can copy Tesla's manufacturing improvements, but likely not the vertical integration or corporate culture, and changes are slow. Can they become competitive fast enough as the market swings to EVs? Will they lose enough market share that their debt will become unsustainable? Likely different answers for different companies.
Tesla’s own price cuts have been successful in increasing sales, with Tesla delivering a new record number of vehicles last quarter.
However, Tesla CEO Elon Musk is insisting that the automaker is not “starting a price war”:
We’re not “starting a price war”, we’re just lowering prices to enable affordability at scale.
But historically, Tesla has sold vehicles for whatever buyers have been willing to pay. In 2020 and 2021, Tesla increased prices, and while it was partly due to cost increases, the automaker’s gross margins also greatly increased during that time.
Tesla’s industry-leading gross margin is going to be tested this week as the automaker is expected to release its Q1 results on Wednesday. Investors are going to be looking at how big of a hit the gross margin has taken with the first wave of price cuts.
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