Detroit — Tesla Inc makes more money on every vehicle it sells than any of its global rivals. Now, CEO Elon Musk is using its superior profitability as a weapon in the EV price war he started.
Tesla was once one of the biggest loss-making companies in the auto industry, but over the past year it has built a commanding profit-per-vehicle lead over most major rivals. Reuters Analysis of industry data shows.
Tesla made a gross profit of $15,653 per vehicle in the third quarter of 2022. This is more than double what he did for Volkswagen AG and four times what he did for the same period. Toyota Motor Corporation more than five times that of Ford Motor, according to the company. Reuters analysis.
For most of this year, Tesla has joined rivals in aggressively raising the prices of its most popular cars, including the Model Y SUV. Shortages of semiconductors and other materials have held back production in the auto industry, allowing companies across the industry to focus on higher-margin models and post strong profits despite lower sales volumes. rice field.
Tesla’s decision to reverse course and spend its production cost advantage on price cuts has dented the quantitative profit strategy pursued by established automakers such as GM since the 2008 financial crisis and doubled during the pandemic. I am challenging.
To keep production costs down, Tesla has invested heavily in new manufacturing techniques. For example, replacing small metal parts with larger castings. Tesla has brought battery manufacturing and other parts of his supply chain in-house to standardize vehicle designs and improve economies of scale.
Using production cost advantages to finance markdowns has a long history in the automotive industry.
Henry Ford slashed the price of the Model T in the early 20th century as his innovative mass production system was revived. Throughout the 1980s and his 1990s, Toyota took advantage of the cost lead provided by its lean production system to deliver features at prices that Detroit automakers struggled to match. Now Toyota is rebooting its strategy under pressure from Tesla.
Electric vehicle demand growth in 2022 has outpaced the overall US and global market. This has spurred automakers to push the price of electric vehicles up. Ford has raised the price of his F-150 electric pickup by 40% in 2022.
But analysts warn that the global EV market could soon have more capacity than demand.
By 2026, North American EV demand will reach a level of about 2.8 million units annually, said industry forecaster Warren Brown. But his EV factories in North America could assemble more than 4.5 million of his vehicles, with overall utilization at just under 60%, he said.
In China, the end of central government subsidies has fueled a market share war among competitors in the world’s largest EV market.
“Tesla has taken the nuclear option in China to bully weaker, thinner-margin players,” said Bill Russo of Shanghai-based industry consultancy AutoMobility.
Startups such as China’s Xpeng Inc benefited from Tesla’s price hikes. Now Xpeng is cutting prices in China, but it can’t afford to afford Tesla. Xpeng reported a gross profit of $4,565 and a net loss of $11,735 per vehicle in the third quarter, according to company data analyzed by Reuters.
“After we make our cars increasingly affordable, we hope smart cars will be accessible to more people,” Xpeng said in a statement.
Vietnamese EV startup Vinfast said on Thursday it would use price promotions to compete with Tesla.
BYD Co Ltd, a leader in China’s EV market, has announced price increases effective January 1 after Beijing phases out EV subsidies. BYD has so far not reacted to Tesla’s latest price cut in China. But BYD’s gross margin is $5,456 per vehicle, giving it more room to compete on price than VW, Toyota or GM.