Tesla Inc earns more money for every vehicle it sells than any of its global rivals. Now, Chief Executive Elon Musk is using that superior profitability as a weapon in the EV price war he started.
For most of this year, Tesla joined rivals in aggressively raising prices on its most popular vehicles, such as the Model Y SUV. Shortages of semiconductors and other materials kept auto industry production down, allowing companies across the industry to focus on higher-margin models and book strong profits, even as sales volumes fell.
Tesla's decision to reverse course and spend its production-cost advantage on price cuts now challenges the profit-over-volume strategies established automakers such as GM have pursued since the 2008 financial crisis, and doubled down on during the pandemic.To control production costs, Tesla has invested heavily in new manufacturing technology - such as the use of large castings to replace small metal parts.
By 2026, North American EV demand will hit a level of about 2.8 million vehicles a year, said industry forecaster Warren Browne. But North American EV factories will be capable of assembling more than 4.5 million vehicles, putting overall capacity utilization at just under 60%, he said. In China, the end of central government subsidies is accelerating a market share war among rivals in the world's largest EV market.
“Tesla has taken the nuclear option to bully the weaker, thin margin players off the table" in China, said Bill Russo of Automobility, an industry consultancy in Shanghai. "Big pie, fewer slices, more to eat for those that remain.”
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