Tesla’s aggressive pricing strategy has helped the company achieve record delivery numbers, but at the expense of profitability. In the third quarter of 2023, Tesla’s automotive gross margin without regulatory credits dropped to 16.3% from 27.9% the previous year. Elon Musk, the CEO of Tesla, has acknowledged the need to continue lowering prices to make their vehicles more affordable for customers.
Stellantis CEO, Carlos Tavares, expressed his reluctance to follow Musk’s strategy of continuously reducing prices. Tavares believes that slashing prices without considering the true cost of production would be detrimental to the company’s profitability. He cited an unnamed company that experienced a significant decline in profitability due to aggressive price cuts. Tavares aims to avoid a “race to the bottom” by focusing on maintaining reasonable pricing while considering costs.
Other major American auto companies have also faced challenges in their electric vehicle endeavors. Ford reported a loss of approximately $4.5 billion in its electric vehicle business in the previous year. General Motors, despite expressing a desire to compete with Tesla in the electric vehicle market, scaled back its electric vehicle plans in late October.
Despite already implementing price cuts, Tesla continues to lower prices further. Recently, the company reduced the prices of its Model Y crossover by over $5,000 in several European countries.