Most automakers holding off on EV price cuts

Brinley said she doesn’t see automakers reliving past mistakes when incentives pushed prices below manufacturing costs in an attempt to inflate demand and keep factories running.

“To cut prices in order to increase sales is dangerous,” she said. “It can put you in a position where you are not making a profit.”

Tesla is in something of a unique position. It is forecasting gross vehicle margins above 20 percent, even after the price reductions.

It also has new factories in Texas and Berlin, along with a recent expansion in China, and it needs growing vehicle orders to support the ramp-up of those facilities.

Tesla produced 1.3 million vehicles last year and is forecasting 1.8 million this year.

But unlike much bigger automakers, Moody said, Tesla does not have the ability to quickly develop new models at lower price points. So to maintain its market share, it is lowering prices on the models it has, pushing price points down from luxury levels.

“I don’t see Tesla being able to come up with two to five more models in the next five years,” Moody said. “Even though they have a dominant part of the electric car marketplace, they also have to pay attention to a very large number of high-quality competitors coming into the marketplace.”

Tesla is expected to announce new products on March 1, possibly including an entry-level model starting below the current sticker of its Model 3 sedan at $45,630, including shipping.

Rather than a price war, Moody sees the current situation as a value war.

While early adopters are willing to pay a premium for EVs, mainstream buyers will be more focused on an apples-to-apples comparison with combustion vehicles and hybrids, Moody said. That will require mainstream EVs at mainstream prices with fewer compromises.

“If you price people out of the market because it costs you so much to build the thing, maybe that needs to be reassessed,” Moody said. “The strategy of other automakers — Kia, for example — is probably not to reduce prices but to build lower and lower priced cars that are complementary with what they already have.”

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