Media Missing The Real Story Driving The Ford/Tesla Price Cut Controversy

A couple of weeks ago, Tesla announced it was cutting the pricing by about 20 percent on its four vehicles, the Models 3, S, Y, and X. At that time, the media – those without expertise in anything automotive – jumped up and down about the “shockwaves” roiling the car industry. And how the price cuts would stir up a price war in the electric vehicle (EV) industry.

Traditional Media Not Versed In Car Industry

Indeed, this is a standard analysis by the “mainstream media” (as it is called). They really don’t know about the ins and outs of the car business, so they can be somewhat forgiven for their traditional knee-jerk reactions and analyses of automotive pricing trends (they don’t know about things like retention rates, conquest sales, existing inventory, and all the rest that goes into making up a picture of the industry). They do know that the leaders in the business are makers like Ford, GM, Stellantis (the successor to Chrysler Corp. and Fiat-Chrysler), Toyota, Kia, Hyundai, and Tesla (in the EV world). And basing their analyses on their traditional knowledge of business, usually limited to things they may have learned in Econ 1, they come up with the usual “horse race” analogies and price wars – things they can really put their reportorial teeth into.

However, things change when you get into the automotive world, where you get deep dives well below the superficial things that the traditional media looks at.

For example, when one of the major traditional outlets, the New York Times, dabbled its reportorial toes in the automotive pool, it noted that – I am paraphrasing here – Tesla was using its huge corporate profit margins to win an EV pricing war. Note the hidden reference to the “horserace analogy” – there’s a winner and losers, as in traditional racing. Now, it would be great if the automotive world was as simplistic as this, but it isn’t.

The NYT was referring to the seemingly quick price cuts at Ford that dropped the pricing on all levels of its very popular Mustang Mach-E by nine percent. In its usual “authoritative” manner, the paper announced what it wanted you to think was its authoritative considered opinion that Ford had dropped the pricing on its popular EV in response to Tesla. There could have been some of that thinking in the boardroom at Ford at some point when they made their decision, but according to the automaker, the price cut had been planned.

It is true, if you look at it, that following the automaker’s two recent price bumps on its super-hot F-150 Lightning electric pickup – many people are paying over MSRP on the Lightning and close to list on the Mach-E – that there is money rolling into Ford’s coffers as a result of EV and pickup sales so the price cut, while it hurts the bottom line to a degree, isn’t as debilitating as it might have been had the automaker not had the number of successful models out there selling well. Indeed, according to this week’s analysts’ phone call from the automaker, the company generated $44 billion in sales last year versus $37 billion in 2021. And, yes, the automaker has been hurt by continuing quality issues to the tune of over $2 billion last year, as well as supply chain problems. Those facts can’t hide Ford’s earnings will be between $11 and $12 billion for the year when everything is adjusted (and it doesn’t speak to the fact that shareholders will be getting dividends of between $6 and $8 billion when the checks are cut). The bottom line is that, though 2022 was a tough year for the automaker, it is still in business, and its prospects – if you are a shareholder -- are good.

Ford’s Earnings Picture is Quite Interesting

The most interesting figure is the earnings figure of up to $12 billion. That’s quite a piece of change, and it matches the entire earnings of Tesla (according to a recent analysts’ call). Indeed, Ford’s earnings – before expenses – are nearly four times the earnings of Tesla. So, you can see the disparity in income between the automakers. The “traditional media” is so focused on the horseracing analogy – they love it in many areas, too – that a good analysis of the whys and wherefores of the price cuts is never noted.

If you think that Ford is quaking in its boots or making plans for an EV price war, you had better rethink your understanding of the auto market.

Indeed, Tesla is still the kingpin in the EV market, with sales of about 520,000 EVs last year and sales of about 120,000 in the last quarter. Here’s the thing about this: how big and how fast can this automaker expand its sales? Also, how far is it willing to bite into its profits and earnings to move product? This is something that is seldom really probed too deeply.

When Tesla made its move to to cut its prices the media viewed the price drop as a move to start a “price war” among EV makers. The truth of this analysis is simple: the kingpin decides to cut prices, and the mainstream media analysis sees this as shaking up the market for the market leader, Tesla. It may do that in the short term, but in the long term, unless Tesla can become large enough or unless it has expands its lines to include more variety, it is unlikely to remain the market leader in the long term. Elon Musk may be the world’s richest man, which skews the view, but he is not rich enough to compete long-term against the likes of Ford or GM or Hyundai or Kia, or Mercedes. For Musk fans, this may seem like sacrilege, but it isn’t.

The truth of the market situation is this: once Ford gets its financial house back in order, it will start turning out EVs in cookie-cutter fashion. To put this into perspective, last year, Ford sold about 654,000 F-150s (of all trims and prices). The F-150 was the market leader for the 46th straight year. Remember, the 654,000 pickups is only one year’s worth of F-150 pickups. In 2021, Ford sold 726,000 F-150s, keeping the automaker the market leader. The F-150 was only one model. Starting in 2021, Ford had a variety of Broncos to sell, plus the Mustang Mach-E EV went on sale that year, adding to the automaker’s sales. Last year, they began selling the immensely popular Ford Maverick compact pickup (hybrid and standard gas engine). That gave Ford sales of over 1 million vehicles for the year. Tesla had sales that were roughly half that.

Tesla Is The Current EV Market Leader

It is true that Tesla’s 520,000 sales make it the leading EV maker now. However, it is facing competition from not only Ford but also GM, Stellantis (formerly Chrysler-Fiat), and others like Mercedes, Hyundai, Kia, and Volkswagen. Each of these companies is adding battery partners or building battery plants, plus some are adding more assembly capacity. Unless Tesla is ready to dig further into its treasury, there will come a point where its own size limits and resources constrain it. It is true that Tesla is also building its own battery manufacturing capability and lining up sources of battery materials, but the question is how much further it will or can go.

Ford is rapidly pushing to expand its EV output to 130,000 this year (it is a stretch, but the automaker will likely make it). It expects to be selling in the vicinity of 600,000 EVs in a couple of years (2025-26 or so). That number eclipses Tesla’s entire output for a year. To help, Ford is building a major battery plant in Tennessee, and it is also adding manufacturing capacity here.

Here is another key difference in the Ford/Tesla price cut dustup: Ford is giving its customers back the difference between the final price and the Mustang Mach-E MSRP in its discounting plan, while Tesla isn’t. Indeed, the refusal to refund any part of the price difference between the Tesla models and sales, isn’t winning the EV manufacturer any fans.

The Real Story Outlined

So, what is the real story? It is simple: Ford is a major domestic carmaker with various vehicles in its lineup. Its resources – pockets, if you will – are far deeper than Tesla. In the long run, this little dustup will be little more than a speed bump in the evolution of the EV market. Tesla will likely be a player in the market but not at the same level it is now, especially when you consider there are other major makers jumping into the market as well.

Ford Motor Photo

Marc Stern has been an automotive writer since 1971 when an otherwise normal news editor said, "You're our new car editor," and dumped about 27 pounds of auto stuff on my desk. I was in heaven as I have been a gearhead from my early days. As a teen, I spent many misspent hours hanging out at gas stations (a big thing in my youth) and working on cars. From there on, it was a straight line to my first column for the paper "You Auto Know," an enterprise I handled faithfully for 32 years. Not many people know that I also handled computer documentation for a good part of my earnings while writing YAN. My best writing, though, was always in cars. My work has appeared in Popular Mechanics, Mechanix Illustrated, AutoWeek, SuperStock, Trailer Life, Old Cars Weekly, Special Interest Autos, etc. You can follow me on: Twitter or Facebook.