Business tycoon and Tesla Chief Elon Musk took the opportunity to talk about critical matters that may adversely affect the automotive industry during the Q3 2023 Earnings Call on Wednesday, including the increasing interest rates and consumer uncertainty.
The Tesla boss also announced plans to follow Ford and General Motors’ decision to slow down electric vehicle expansion as they worry about declining demand.
Tesla to delay product capacity expansion
Tesla warned that it would delay the expansion of its electric vehicle production capacity in the upcoming Gigafactory Mexico due to economic uncertainties that may weaken customer demand.
CEO Musk informed investors that the automaker will only accelerate the production capacity expansion at the planned Gigafactory in Nuevo Leon once interest rates decline.
Notably, GM also announced plans Tuesday to postpone the Chevrolet Silverado and GMC Sierra e-pickup trucks’ production in its Michigan plant by a year due to declining EV demand.
Ford also declared last week its decision to eliminate one of three shifts at its F-150 Lightning plant in the meantime. It also slowed down the pace of its EV production in July and focused on commercial vehicles and hybrids, Reuters reported.
Concerns
Interest rates and affordability
CEO Musk stated that increasing interest rates may discourage potential buyers despite offering major price cuts.
“I think there’s still quite a few shoes to drop on the bad credit situation. Commercial real estate, obviously, is in terrible shape. You know, credit card interest rates are usurious, with over 20% interest rates, which, over time becomes extremely punishing…
People hesitate to buy a new car if there’s uncertainty in the economy.”
Tesla CEO Elon Musk (via Money Control)
Price cuts
The billionaire also expressed his thoughts about the risks of Tesla’s aggressive pricing strategy, analogizing it to “digging a tunnel with a spoon.”
“It’s like Game of Thrones for pennies. I mean, as a first approximation, if you’ve got a $40,000 car and roughly 10,000 items in that car, that means each thing, on average, costs four bucks.
So, in order to get the cost down, say, by 10%, you have to get 40 cents out of each part, on average. It is a game of pennies… It does feel like digging a tunnel with a spoon at times.”
Tesla CEO Elon Musk (via Money Control)
CEO Elon Musk’s remarks and outlooks caused TSLA shares to decline by over 4% in after-market trading. However, it is worth noting that these sentiments are valid. Electric vehicle prices remain higher than customers’ buying power, plus the high-interest rates. It substantially discourages potential buyers from going through the purchase.
