Severe electric vehicle (EV) price wars have already started in China. Some BYD cars cost under $23,000. And these are not tiny, urban commuter EVs. They are real sedans that carry four or five people. Tesla Inc. (NASDAQ: TSLA) has needed to drop the price of its long-range Model 3 rear-wheel drive in the world’s largest EV market. It is now priced at $37,000. The cut may help Tesla, but it is still competing with less expensive cars with similar features. It is hard to measure the brand value of Tesla in China. It may be the only thing that helps it hold market share.
24/7 Wall St. Key Points:
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EV price wars have begun in China, and Tesla Inc. (NASDAQ: TSLA) will have to cut prices to hold its market share.
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Tesla faces a variety of headwinds in China, Europe, and the United States.
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BYD has started an assault on Europe. That will damage companies like Volkswagen. Tesla has two problems. First, Elon Musk’s image in Europe has eroded. Tesla’s unit sales have been dropping all year. Across the entire region, Tesla registrations are down by more than half in some months in Europe’s largest countries. Second, BYD has pulled ahead of Tesla in unit sales.
Tesla is protected by the U.S. government with tariffs of 100%. Even so, Musk’s image has taken Tesla’s market share below 50%. Car companies, including GM and Hyundai/Kia, have fractions of the market but continue to push several EV products into the market every year. The federal government’s $7,500 EV tax credit disappears in a month. Finally, there is no guarantee that the Trump administration will hold the tariff in place. The president’s decisions about trade policies have been fickle. And his past strong relationship with Musk has frayed.
Tesla does not disclose the margins on each of its models. However, automotive revenue dropped 16% in the most recently reported quarter to $16.6 billion. Across the entire company, net income attributed to common shareholders fell 16% to $1.2 billion. Gross profit fell 15% to $3.9 billion.
Even if Tesla has success as an AI, robotics, and self-driving company, it will take several quarters for them to show up in the profit and loss statement. In the meantime, it has to hold its level of profitability. The global EV price war makes that a long shot.
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Author: Douglas A. McIntyre
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