The electric vehicle market is facing a very big price war. EV manufacturers have taken to the battlegrounds for competition triggered by Tesla’s price reduction of their EVs at the beginning of 2023. As Tesla continues to cut down the prices of their EVs throughout the year, Chinese EV automakers are facing difficulties competing with Tesla while European carmakers are taking Tesla head-on and challenging their dominance.
Chinese state-owned automaker SAIC is cutting down costs in a variety of areas from lowering wages, to lowering electricity usage, and other cutting down in other areas. Because Chinese labor laws don’t allow lower wages, there are loopholes to reduce the number of working hours. New car manufacturing job advertisements are advertising wages well below the average monthly wage in China. Auto suppliers are also facing challenges since automakers are pushing suppliers to lower their costs, especially battery manufacturers. This all results in China’s auto industry profitability dropping, even if they are trying to cut costs. Tesla and other EV manufacturers are too competitive.
Chinese-manufactured EV vehicles are just not favored. Although they make cost-effective vehicles, there are numerous concerns over quality and reliability. U.S., European, Japanese, and South Korean-manufactured EVs still remained the most preferred EV choice for consumers.
Other manufacturers have responded to Tesla’s price cuts. The Ford-150 Lightning lowered its MSRP by $10,000. Hyundai Ioniq 6, Audi e-tron GT, Mustang Mach-E, Volkswagen ID line, and other EVs have seen lower prices. Volkswagen aims to launch 11 fully electric models by 2027. They want to price some of their EVs under 25,000 euros to combat the Model 3’s lower prices. Manufacturers have a lot of work to do to face Tesla as they continue to lead in EV sales with 466,000 EVs sold in the second quarter of 2023.
EV prices are starting to drop, especially Tesla’s lineup, because of how much EV supply there is. Unsold EV models are starting to fill up dealerships. Rising interest rates have slowed down consumer spending. This dropped the demand for EVs and allowed EV manufacturers to increase supply which in turn dropped the prices of lithium due to low demand for EVs, allowing manufacturing costs to go down. Tax rebates have been put in place to help with purchasing an EV but the demand still remains low.
As long as interest rates remain high, there is no incentive for people to buy EVs. EVs still lack the technological capabilities to go long distances which is resulting in people purchasing hybrids. Only high-end models like the Tesla Model S have an estimated 400-500 mile range, which is too expensive for the average consumer.
If automakers want to sell their EVs during periods of high interest rates, they would still have to lower costs to a point where demand picks up and beats their competitor’s price. However, interest rates won’t remain high forever, and sooner or later governments will need to lower rates to encourage consumer spending. This will make the EV price war for manufacturers increasingly difficult. But this will be the time to purchase EVs before supply runs out and prices go back up. The chip shortage in 2022 should have served as a wake-up call to car manufacturers to ensure there won’t be an EV shortage again. Lessons learned could result in EV manufacturers coming out with newer, cheaper models to prevent another supply shortage of EVs.
Another question remains, Are EVs still favorable, or are people waiting until there is the necessary infrastructure to handle EV charging? It’s a mix of many different factors. People want to see new EV models that offer different options than competitors, wait for rates to drop, and also wait to see if manufacturers will drop their sale prices on top of MSRP prices. As manufacturers release new EV models, EV manufacturers will have to be prepared for a difficult and strategic price war.
Author: Aleksandros Spaho
