Is Elon Musk doing what Henry Ford did? Jim Farley thinks so
Tesla CEO Elon Musk has created quite ripples in the automobile industry, especially in the global electric car segment, by slashing the prices of Tesla EVs multiple times over the past few months, which caused a price war in the industry. This has visibly improved Tesla's sales numbers. Ford CEO Jim Farley believes that Musk is not doing anything new. He believes that Musk is simply following the same route that Henry Ford once took in 1913.
Henry Ford used the strategy to cut prices of the iconic Ford Model T to boost the car's sales, which paid off. Ford CEO Jim Farley says that Tesla's current price war strategy for electric vehicles is simply a repeat of that. Insider reports quoting Farley that Musk's move is a play right out of Henry Ford's Model T playbook.
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Interestingly, Henry Ford explained the importance of price cuts for Model T and subsequent cars in his 1922 autobiography, 'My Life and Work’. The iconic personality in global automotive history first started using a conveyer belt on the Model Y assembly line in 1913, resulting in a significant production hike. As the auto company was able to make more vehicles in a shorter period of time, Ford started slashing the price of the Model T, which paved the way for a price war in the contemporary industry.
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Some 110 years later, Tesla CEO Elon Musk adopted a similar strategy to boost sales of Tesla cars. Over the past few months, Tesla has continuously lowered the prices of the most popular cars from the brand. In 2023 alone, Tesla has slashed its car prices six times so far. Musk wants Tesla to double vehicle production from the company's 2022 numbers and aims to build two million vehicles in 2023, as the company's newest plants in Berlin and Austin are ramping up production capacity.
While This increased production and price cuts are hurting the automaker's profit margins, which investors do not like, Elon Musk claims that he knows what he is doing. He even said during the Q1 2023 earnings call that it is better to ship many cars at a lower margin and harvest that margin in the future as the automaker aims to churn revenue from its autonomous driving software.