Tesla reduced prices across the world this month by up to 20%, triggering a price war in the auto industry. The EV industry expected that these significant price cuts would greatly influence the global car market and pressure rival automakers.
However, only a few other brands have followed the lead of the US EV maker in significantly lower prices, according to some sources.
It is worth noting that when a competitor, such as Ford, lowers the cost of its EVs to contend with Tesla, it almost certainly means increased sales and higher production.
Ford’s Mach-E to compete with Tesla Model Y
Tesla is in a situation to boost production to meet sales thanks to many advancements to its operating factories in 2022 and two new factories.
Although it has reduced its prices and demand is reportedly increasing, shipping times still need to be close. Ford announced that it would increase Mach-E production from 78,000 to 130,000 units per year after lately reducing the price of its Mustang Mach-E electric crossover to better contend with the Tesla Model Y.
During the company’s recent Q4 2022 earnings call, executives announced that the company would work to keep costs down from every angle. As Tesla’s prices fall, demand rises, and it sells more cars, it is expected to turn to suppliers as a cost-cutting measure.
Dan Sharkey, a lawyer for automotive suppliers and co-founder of Brooks Wilkins Sharkey & Turco, clarified that suppliers are already starting to struggle, so Tesla’s cost cuts, and those of other brands following suit, will make things even worse for them.
“It is never good for suppliers when (automakers) cut vehicle prices because that pressure rolls downhill. I never like it because I know eventually they’re going to try to get it out of one of us. My message is, there’s not going to be any room there. Many suppliers are financially struggling.”
Dan Sharkey, a lawyer for automotive suppliers and co-founder of Brooks Wilkins Sharkey & Turco
Increased demand affecting the suppliers
During the COVID-19 pandemic, an unidentified Tesla supplier recently stated that the US EV maker was more concerned with deliveries than prices or costs. It implies that Tesla would pay high fees for some parts if it meant getting them faster and producing and delivering more cars.
Tesla has also had exceptional margins in recent years. However, as some suppliers become price-locked, they may have yet to see such victory. Now, brands like Tesla are hoping to cut costs even further in the future.
Furthermore, Teslarati notes a Michigan-based supplier that regards Tesla as its largest customer. Interestingly, the EV manufacturer thrived while the supplier declared bankruptcy.
Nonetheless, there is some hope for suppliers. Although Tesla and some of its competitors may push for lower prices, volume is expected to increase significantly. With lower EV prices, demand rises, and brands sell more vehicles. Suppliers may have to accept price cuts, but they may make up for it in volume.
