Tesla abandons BMW, Mercedes battle to take on the likes of Ford

Tesla Inc. has entered a new era: one in which Elon Musk keeps a different set of car executives up at night, while others rest a little easier. In the decade since the Model S launched, Tesla has been picking off customers largely from luxury players led by BMW and Mercedes-Benz. While Musk had ambitions to take on mass manufacturers with a $35,000 Model 3, he ended up charging much more — first out of necessity to keep Tesla afloat, and then because he and the broader industry were production constrained.

By: Bloomberg
| Updated on: 24 Apr 2023, 09:51 AM
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A Tesla Model 3 vehicle is shown using the Full Self Driving Beta software (FSD) while navigating a road in California, US. (REUTERS)
A Tesla Model 3 vehicle is shown using the Full Self Driving Beta software (FSD) while navigating a road in California, US.

Musk set wheels in motion this time last year to change all that. Tesla opened two new plants, doubling its car factory footprint. With Musk dead set on expansion and less concerned about earnings, Ford and Renault bosses are now among the ones looking nervously in their rear view mirror.

“Price wars are breaking out everywhere," Ford CEO Jim Farley said Thursday at a charity event in Detroit, days after Renault said it was examining how its models are positioned. “Who’s going to blink for growth?"

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Luxury-car makers won’t be totally immune to pricing pressure — Mercedes slashed the stickers on its EVs in China late last year, weeks after Tesla started cutting. But German executives have been adamant about their unwillingness to follow Musk in compromising brand value for volume.

If anything, Mercedes-Benz Group AG CEO Ola Kallenius wants to move further upmarket, as this strategy has been paying dividends. The manufacturer said late Thursday that earnings were stronger than expected in the first quarter, driven by resilient pricing.

“Tesla is not only sacrificing its EV margins to achieve its volume ambitions. To some extent, it is also placing the goodwill and brand equity that it has built up on the altar too," Daniel Roeska, Bernstein’s European auto analyst, wrote in a report Thursday. “This is most important in the premium end of the market, where brand perception and social status are the crux of sales."

Musk’s markdowns have been dramatic and swift. In the US, Tesla has hacked the starting price of its top-selling Model Y sport utility vehicle by 29% in three months.

That’s an issue for Ford, which recently discounted its Mustang Mach-E SUV by about $4,500 on average to stay competitive. While the automaker pulled ahead of General Motors Co. last year as the No. 2 seller of EVs in the US, it remains well behind Tesla.

With Ford lacking the economies of scale Musk has built and investing heavily to catch up, the company has forecast a $3 billion loss for its electric vehicle business this year.

Renault is planning to go a step further than Ford — not only separating its EV and combustion engine business, but planning an initial public offering for its plug-in car and software operations. The head of the Renault brand called Tesla’s price cuts a clear challenge early this week, and investors sold off the French company’s stock on Thursday despite its strong first-quarter sales.

While fielding several questions on the sustainability of the €42,000 ($46,000) sticker on the electric Megane E-Tech hatchback, Chief Financial Officer Thierry Pieton acknowledged that overall pricing may be “a little softer" in the second half. Still, he said Renault isn’t planning any drastic changes.

“There is no big incentive to go cut the prices and kill residuals and go in a spiral that some of the competition is following," Pieton said.

First Published Date: 24 Apr 2023, 09:51 AM IST
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