Will a price war accelerate the switch to electric cars?

When Tesla started cutting prices this year, it sent ripples through auto showrooms around the world.

Rival manufacturers from Detroit to Japan began to see their stock prices begin to fall as second-hand prices for their battery models began to fall and a price war for electric vehicles was expected.

Tesla has promised to go further. Elon Musk’s group is willing to sacrifice profitability to drive demand for its models as it tries to hit ambitious sales targets to become the world’s largest automaker by the end of 2010. increase.

But will the electric pioneer’s price cuts force others to follow suit, and will it accelerate EV adoption among consumers?

Will there be an EV price war?

Most car makers have a hard time stressing not cutting prices. They point out that while Tesla has had to fill new factories and orders are declining, most manufacturers can’t make their battery models fast enough.

“Demand for our products has been very stable, which is surprising given the geopolitical headwinds and tariffs,” said Jim Rowan, CEO of Volvo Cars. week.

Jim Rowan, CEO of Volvo Cars. The automaker said profit margins for electric models have reached 7% and will rise further this year © Mikael Sjoberg/Bloomberg

“I think doing anything other than maintaining price discipline would hurt shareholders,” Rowan told the FT. “We do not expect to be involved in lowering prices.”

Ford is an exception, cutting the price of its electric Mustang Mach E twice this year.

Chief Executive Jim Farley said this week that the company has slashed the cost of its vehicles by $5,000 this year, stressing that “we’re not going to set prices just to gain market share.” also said it has raised the price of its F-150 Lightning electric pickup truck model by $11,000 since it launched.

Behind the scenes, stealth discounts are creeping into the industry.

Tesla sets prices centrally, but most automakers allow dealers to quietly offer price cuts, often using funds from the manufacturers’ marketing budgets.

Dealers, analysts and lessors all say they’re starting to offer discreet discounts on mainstream brand EVs, even as automakers spend a lot of time ordering new battery cars.

Will Chinese Manufacturers Cut Prices?

Current manufacturers have no power to prevent an EV price war. A dozen or so Chinese nameplates target Europe, the crucible of the West for electric vehicles.

“The electric vehicle market is becoming more competitive, which should drive down prices as a result,” said Elizabeth Connelly, an analyst with the International Energy Agency. More and more new entrants to the EV market are gradually offering affordable models.”

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This drives headline prices down, forcing established manufacturers, especially in Europe, to cut their prices to compete.

“There are too many participants, more participants,” said Jefferies analyst Philippe Ouchois, adding that the high price can’t last, so “the only question is how it will go.” to normalize to 2020,” he added.

Does price competition benefit consumers?

There is evidence that price cuts may actually be making some electric cars more expensive, or at least delaying the transition to affordability.

This is due to the residual value, the used value of the car.

Most new cars in developed markets are purchased with a transaction that covers the amount of value the vehicle loses, or “depreciation,” rather than the overall price.

Auto show attendees see the Ford Mustang Mach E
Ford has cut the price of the electric Mustang Mach E twice this year © Jeenah Moon/Bloomberg

As second-hand car prices drop, more funding is needed, and car leasing costs rise.

As the regional CEO of one major automaker put it, “If you cut the price and the residual is less, the monthly fee hasn’t changed at all.” “But what you did just shattered the trust of the entire industry.”

Michael Shu, European head of BYD in China, told the FT: The same car drops later.

Resale prices for Tesla’s own models have plummeted over the past year, partly due to the company’s price-cutting policy.

Leasing market executives say some banks are starting to raise rates on electric vehicles out of concern, making declining residual values ​​across the sector a self-fulfilling prophecy.

Data from UK leasing group Leasing.com show Tesla’s average monthly price is higher than January, and EV payments across all brands are also up slightly.

But while declining residual values ​​are bad for new car buyers, they help make EVs from much larger used car makers more affordable. “We are excited that this will unlock more affordable EVs,” said one auto trader.

©Kuang Da/Jimian News/VCG via Getty Images

Which automakers will benefit most from price competition?

Automakers with the biggest margins on battery models can afford more aggressive price cuts if needed.

Volvo said last month that profit margins on its electric models reached 7%, and are expected to rise further this year as the price of lithium, the key metal in batteries, falls further.

Analysts say automakers that can only turn a profit on EVs may struggle to cut back, sacrificing sales instead.

Similarly, the group with the highest penetration of electronics can be flexible in its lineup while selling high-margin models.

“We have to cover as much of the market as people can afford,” General Motors Chief Executive Mary Barra told investors last month. “For more EVs to be sold in the U.S., we have to address where the customers are from an affordability perspective, also considering the competition,” she said.

Behavior also varies by country. Some of the big markets have his EV allocation, including China, California and, starting next year, the UK.

In these regions, automakers are doing so only to avoid fines for missing sales quotas and to be able to keep selling more profitable gasoline vehicles, according to two senior industry executives. In the meantime, we may decide that the most profitable way is to mark EV down to loss-making levels.

Will EV sales accelerate?

Battery car sales are progressing faster than most industry expectations.

The International Energy Agency this week raised its forecast for EVs in 2030 from 25% to 35% of sales.

In some segments, buying an electric vehicle using a monthly payment approach is cheaper than a gasoline model, according to dealers.

There’s also evidence that Tesla’s price cuts have started to generate more interest in the brand compared to competitors that have maintained their prices.

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Fiona Haworth, CEO of Octopus EV, a group that specializes in electric vehicle leasing, said: “We’ve certainly seen an increase in conversion rates for people considering a Tesla.

Jefferies’ Houchois said: Automakers have to give up some profits and think about what they can do to cut costs. ”

Some are starting to cut costs to adapt. Volvo Cars plans to cut costs, and Jeep and Vauxhall owner Stellantis is proposing voluntary layoffs for 33,000 US factory workers, citing the costs of its EV program.

“Some say we can delay the migration,” says Hochois. “I don’t think automakers will change their investment plans that much. The direction is pretty clear.”

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