As the electric vehicle (EV) market experiences a slowdown, Tesla CEO Elon Musk has taken a bold approach to stay ahead of the competition by slashing prices for Tesla’s flagship cars. However, a competing CEO, Carlos Tavares of Stellantis, has issued a warning about the potential consequences of this strategy. Tavares cautioned against a “race to the bottom” among EV manufacturers, highlighting the risks of a “red ocean” scenario if competitors follow suit.
Tavares expressed his concerns during an event in Amsterdam where he unveiled Stellantis’ new large-platform battery system. He emphasized the importance of considering the reality of costs when making pricing decisions, stating, “If you go and cut pricing disregarding the reality of your costs, you will have a bloodbath. I am trying to avoid a race to the bottom.”
Tavares’ comments align with the current state of the EV market, which is witnessing a slowdown that is forcing manufacturers to reassess their investment strategies. In an attempt to catch up with market leader Tesla, American carmakers invested billions in new EV lines last year. However, sales are now slowing down, and profits are taking a hit. Notably, none of the top four automakers in the U.S. are investing in Super Bowl ads for the first time since 2001.
Ford, one of Tesla’s competitors, has openly admitted that its EV line is losing money, with an estimated loss of $4.5 billion in 2021. General Motors also scaled back its EV production target last October. As the costs of car ownership continue to rise, automakers are resorting to lowering sticker prices temporarily to maintain demand. However, this strategy comes with risks.
Tavares pointed out a company that experienced a collapse in profitability after brutally cutting prices, without explicitly naming Tesla or Musk. It is worth noting that Tesla had its worst start to a year in January since going public. The company began reducing prices last year to stay ahead in a slowing market filled with new competitors. As a result, Tesla’s profit margin decreased by over 40% year-over-year, as reported in the third-quarter earnings of 2021. Musk acknowledged the need to keep cutting prices to make monthly payments attractive to consumers, especially with high interest rates. Recently, Tesla reduced the price of its Model Y SUV by over $5,000 for some European buyers, following a similar move in China.
In contrast, Stellantis announced its plans to reduce operating costs by closing factories and laying off approximately 1,350 workers. However, the company has not yet adjusted the sticker price for its electric Dodge and Jeep vehicles.
Tavares emphasized the potential difficulties that lie ahead when companies adopt aggressive price-cutting strategies. It is clear that he believes a more cautious approach is necessary to ensure long-term sustainability.
At the time of writing, representatives from both Tesla and Stellantis were unavailable for comment.
The EV market is undoubtedly facing challenges as demand cools and profitability becomes a concern for manufacturers. The decisions made by industry leaders like Elon Musk and Carlos Tavares will shape the future of the market. As consumers await more affordable EV options, automakers must strike a delicate balance between attracting buyers and maintaining profitability. Only time will tell how this race to dominate the EV industry will unfold.
