ROME – Ford’s decision to lower the price of its Mustang Mach-E electric crossover in the United States to between $600 and $5,900, according to the layout, in the wake of what Elon Musk had done with Tesla in mid-January, is sparking something of a tsunami in the auto industry. The fear is that Musk’s move, with price cuts for Model 3 and Model Y models, up to 20% in the US and Europe and up to 24% in China, is only the beginning of a global war on car prices electrics that nobody wants.
Because no one, in this moment of difficult transition to electricity, can afford it. Except Tesla, of course, whose record profitability puts it ahead of its rivals. Just to give an example, in the third quarter the gross profit generated by each vehicle sold was $15,653, more than double that of the Volkswagen group, four times more than Toyota and five times more than Ford. According to the analysts of LMC Automotive, however, ”to remain competitive on the market, electric vehicle manufacturers will not be able to avoid cutting prices, to support volumes”.
But there are also those who oppose this scenario. It’s Luca De Meo, Renault’s number one and newly appointed president of Acea, the association that brings together the European car industry in Brussels. And it is precisely in this capacity that De Meo spoke, specifying how ”a battle over the prices of electric cars at this moment, when we are just starting operations, is not the best thing for the industry”. De Meo – reports Automotive News – said automakers need to have a good profit margin for electric cars, due to the high investment needed, “otherwise this business won’t become very healthy for the industry.”
According to the president of Acea, the reductions in the prices of electric vehicles seen so far are not “structural”, i.e. supported by real cost reductions that are passed on to the consumer. Indeed, automakers are facing rising costs for all-electric cars due to rising battery material prices. And the latter, recalled De Meo, represent 40% of the price of a new car, while raw materials represent 80% of the price of the battery. Thus, ”the cost of electric vehicles is still relatively high and everyone is trying to protect their margin”.
But it is also true that, as AlixPartner explains, if sales volumes are not increased, it becomes difficult to access those economies of scale essential for reducing the cost gap between the electric motor and the heat engine (+58%) and for amortising the enormous investments for electric vehicles projected globally: 526 billion dollars over the next 5 years. So what to do? Tesla has launched the challenge of lowering prices. So far only the Chinese Xpeng and Seres have accepted it, with the announcement of price cuts in the order of 10-13%, and Ford. Only in the United States, however, points out the Chief Customer Officer of the electric vehicle business Marin Gjaja. Because the Dearborn-based company wants to increase the production of its electric SUV while keeping it ”competitive in a rapidly evolving market”.
So if Tesla raises the prices of the Model Y, a direct competitor of the Mustang Mach-E, Ford must do it too, because if volumes don’t grow, there are no economies of scale and there is no cost cutting. The strategic plan, however, is limited to the US market and there are no plans, specifies a spokesman for Ford France, one of the main European markets of the American company, to cut the price of the Mustang Mach-E in Europe. Volkswagen boss Oliver Blume also says the automaker wants to become a global leader in EVs through profitable growth and not a price war with Tesla. Just as the head of the Renault brand Fabrice Cambolive said that ”reducing sales prices by 10% or more in a week weighs on the residual values of second-hand vehicles and damages existing customers. While for us what matters is stability”. In short, we have to wait to see how the situation will evolve.