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Tesla Prices Had To Drop and I View It As Moving Into Competitive Situation

"Tesla margins remain far above the industry norm, so I'd view their price drops more as moving into a more competitive long-term situation," wrote one of Torque News readers pointing to the following expectations from the EV industry.

Yesterday, after I published an article at Torque News discussing what would have happened if Toyota invested in a charging infrastructure alongside Tesla 10 years ago, a heated discussion followed under Torque News Facebook channel.

In that discussion Torque News reader Scott Weather, sharing his concerns about the viability of electric cars, wrote that "Fisker, Ford, Tesla, all are struggling. Tesla is probably in the best position though, but have kept lowering their prices on their vehicles to generate sales, which then devalues other Teslas as well. Ford is laying off folks and stopping production of batteries and their Lightning. Fisker is preparing to file for bankruptcy... for the second time since 2012.You have to question, are EVs really viable in the long-run or are they a fad, promoted and pushed by our government, despite what the market and consumers really want?"

While I can understand Scott's point, I also want to keep in mind that Tesla is making a very substantial profit while dramatically increasing sales, year-on-year.Not sure what is their struggle that you refer to.

As you remember electric vehicle frontrunner Tesla recently dropped prices, sparking discussions about profitability and long-term market dynamics. Here, we'll explore why these price cuts might be a strategic maneuver in a burgeoning industry, and how various factors, from competitor execution to government regulations, will ultimately shape the future of electric transportation. As Torque News Tesla reporter Jeremy Johnson notes, "it's going to be cheaper to make an EV than a gas car by 2027, and that cheaper cost will continue to decline. This will make EVs not only cheaper to operate, but cheaper to make.

In fact, new data shows that the Tesla Model 3 is a used car with values dropping like a stone. Prices have dropped by five digits in just six months.

Michael Turner has some insights on the logic of Tesla and EV price drop from Torque News Facebook discussion.

Tesla margins remain far above the industry norm, so I'd view their price drops more as moving into a more competitive long term situation. Plus we always knew EV prices had to drop to become competitive, so anyone who got an EV expecting value retention didn't think it through.

The problem when you look at the likes of the F-150 Lightning is that it is a hard sell. This applies across the very few EVs ford has available today. While companies such as Kia have embraced EVs and are now shifting decent volumes, their price point and range of options gives them solid appeal. For EVs to sell companies need to make a compelling product. I already own an EV but I've seen nothing from Ford that would interest me. I also wouldn't take the fortunes of a startup as the benchmark for success or failure. They can win or lose just as well as an incumbent player.

What you're looking at is the execution of business by various companies. Yes that matters a bit. But the need to change to EVs is driven by the need to improve air quality and cut CO2 emissions. That external driving force, and the fact EV tech is more than capable for most personal transport purposes now (there are still exceptions) means that we are able to move away from oil etc. But it can only be done as part of a wider decision to cut emissions and that can only come from governments.

So this probably comes down to how much lobbying the oil industry including Toyota do to delay or weaken a shift to EVs. Because if Toyota manages to delay things it gives them time to catch up... But if they don't they could easily see huge parts of their markers vanish. The likes of China's BYD among others are producing very good quality EVs now at competitive price points.

Editor's note: According to Investor's Business Daily, "Tesla's core auto gross margin remained robust at 24.3% in Q4 2022. GM reported a 13.9% gross margin in Q4, while Toyota (TM) boasted 17.1%. BYD Auto gross margins were 22.8%."

What do you think: does Tesla's price drop signal a new era of affordability for EVs, or is it just a tactic to stay ahead of the competition? Please, share your thoughts in the comments below!

Armen Hareyan is the founder and the Editor in Chief of Torque News. He founded in 2010, which since then has been publishing expert news and analysis about the automotive industry. He can be reached at Torque News TwitterFacebookLinkedin, and Youtube. He has more than a decade of expertise in the automotive industry with a special interest in Tesla and electric vehicles.


Jean Paul (not verified)    April 10, 2024 - 4:58PM

The lower the prices, the more sales, taking away from laggard ICE or unprofitable competitors in the EV space (is anyone profitable besides Tesla and BYD)?

Obviously the best approach, no matter how sad I am, looking at Teslas I bought, going for much lower prices.

Armen Hareyan    April 10, 2024 - 5:00PM

In reply to by Jean Paul (not verified)

Here are some thoughts on your point about lower-priced electric vehicles.

  • More affordable options are coming: Several manufacturers are planning to release more affordable EVs in the next few years. This will make EVs more accessible to a wider range of consumers.
  • Not everyone needs a luxury EV: Tesla and BYD have carved out a niche in the premium EV market, but there's also a big demand for more affordable, everyday EVs. Lower priced options will be key to mainstream adoption.
  • Legacy automakers are making a push: Traditional car companies are investing heavily in EVs, and they have the experience and manufacturing capacity to bring down costs.

Steve Lowe (not verified)    April 10, 2024 - 5:04PM

The continuous production efficiency improvements that Tesla has been is one of the reasons for the wider margins that Tesla enjoys over other car makers. Battery prices dropping. True, but everyone else's battery prices drop also. However, improvements such as using a giga casting adds to margins once production ramps up. Got two giga castings now in a vehicle, then more margin can be had. Then look at Sandy Munroe's tear down efforts. Sure the CT has new fangled stainless requiring new expensive processes to be developed, but think what would happen to margins if 48 v, gigabit Ethernet and steer by wire get incorporated into Tesla's other production lines. Also, a Model 2 and/or Robo-taxi using a mega-casting of the entire sub chassis? Never mind Tesla bots going to work on the production lines...Can't touch this!

Steve Lowe (not verified)    April 11, 2024 - 8:51AM

In reply to by Scott Ostrum (not verified)

A car payment is a car payment. My fuel costs are slightly less than half what we pay for our ICE car, certainly not denting a car payment. My Model 3 with tax credit cost me the same as a new Prius at MSRP (without market adjustment), so car payments were a wash for me. My electric costs have been rock steady at 0.16/kw. One year in and I have only rotated tires. Granted other EV folks might supercharge most of the time at .31-.41/kw, so their fuel costs are more closely matched to ICE fuel costs.