Tesla’s price cuts aren’t working

Shares in electric-car maker Tesla slumped by 10% last week after CEO Elon Musk suggested the group would continue to reduce prices to stoke demand “even after markdowns early this year took a significant toll on profitability”, say Dana Hull and Sean O’Kane on Bloomberg. Thanks to “dramatic” cuts, including dropping the price of the Model Y by 29% in three months, Tesla’s operating margin is now at a two-year low of 11.4%. Still, Musk has “said he’s comfortable making less money on each car sold”, arguing that “pushing for higher volumes and a larger fleet” is better than lower volumes and a higher margin, especially given the potential for sales of self-driving software.

Musk may be “intent on ramping up sales volumes at the expense of profitability”, but all the evidence suggests that “the sacrifice isn’t delivering rewards”, says Emma Powell in The Times. For all the price cuts, the “number of vehicles sold rose by only 4% on the previous quarter”.

What’s more, the overall strain on households’ budgets suggests that further sales increases may be hard to come by. Musk’s argument that Tesla could still sell its cars for “zero profit” and make money from self-driving software is also contentious. Crashes in recent years “raise more questions over the rate at which Tesla can roll out fully autonomous vehicles”.

While consumers are willing to pay “serious money” for automated driving, this “isn’t an area where Tesla has shown a convincing technical lead”, says Stephen Wilmot in The Wall Street Journal. Still, even if Tesla’s price war doesn’t boost its profits, it is “already hurting financially precarious US start-ups such as Rivian and Lucid”.

It will also “accelerate” the adoption of electric vehicles (EVs) in America, reducing the scope for competitors in Detroit and Germany to make “fat profits” from petrol engines. By contrast, Chinese manufacturers “know better than anyone how to compete on price” and are likely to get support from a state “intent on dominating EV technology”.