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Tesla’s Strategy Of Slashing Prices Puts Other Automakers Under Pressure Slimming Profit Margins

Warren Buffet-backed company BYD is expected to enter the US market as it is ready to offer cheaper EVs against the competitors.

Tesla’s strategy of slashing prices has put EV competitors under pressure to do the same in risk of losing profit margin.

Electric vehicle stocks meandered to a mixed close in the week ending April 28, as earnings optimism following positive big tech’s quarterly reports lifted sentiment. 

A new model of electric car from the Chinese multinational BYD Co Ltd is seen at the Automobile Barcelona show. BYD was invested by Warren Buffett over its battery technology. PACO FREIRE/BENZINGA

EV leader, Tesla, Inc. (NASDAQ:TSLA), continues to struggle amid apprehensions over the company’s “razor-and-blade” business strategy.

Wall Street analysts have begun to question Elon Musk’s strategy of sacrificing Tesla’s near-term margin in favor of the high-margin revenues the company could reap from its future full-self-driving software. 

The skepticism stems from the fact that the timeline for the wider FSD launch is uncertain, amid several controversies concerning the technology and regulatory bottlenecks.

“We’ve tried to maximize the utilization of the so-called 45W paragraph, which allows for sales through the lease channel to benefit from the $7,500 tax advantage,” said Jose Muñoz, CEO of Hyundai Motors North America.

Jefferies analyst Philippe Houchois, a longtime Tesla bull, this week, dropped his “Buy” rating and stepped to the sidelines. He is highly skeptical that demand elasticity will offset the lower prices.

Future Fund’s Gary Black has also stepped up his attack on Tesla over the company’s strategy and has suggested several options, such as advertising, to push sales.

Tesla announced a $1,000 reduction for the seven-seater option of its Model Y this week, as the company persists with its aggressive pricing strategy.

After Tesla nominated co-founder and former executive JB Strauble to its board, proxy advisory firm Glass Lewis asked shareholders to reject the company-sponsored proposal. 

“The unwinding of conflicting relationships between former management and board members is more likely to be complete and final after five years,” the proxy advisory firm reportedly said.

Fisker, Inc. (NYSE:FSR) shares jumped 44% this week, after the company shared an update on the timing of its European deliveries. In a press release, the company said European regulators have certified the Ocean SUV and that it intends to start deliveries to European customers on May 5.

On a first-quarter-earnings call, General Motors Corp. (NYSE:GM) CEO Mary Barra announced that the company will end production of its Chevy Bolt EV and EUV at the end of the year. 

The proposed move comes even as the company is increasingly transitioning to EVs. The Michigan plant used to produce the Bolt will be used instead to produce Chevy Silverado and GMC Sierra trucks in 2024.

Warren Buffett-backed Chinese EV startup BYD Company Limited (OTC:BYDDY) (OTC:BYDDF) reported 400% year-over-year revenue growth for the first quarter. Earnings also soared. 

BYD has been heavily invested by Warren Buffett due to battery innovation they’ve created.

More importantly, the company was able to preserve margins despite increasing competition from domestic rivals.

The International Energy Agency released its annual EV sales forecast for 2023, which should excite players in the industry. The agency expects EV sales to rise 35% year-over-year in 2023 to a record tally of 14 million units. 

The share of EVs to the total vehicle market is also expected to see a bump up from 14% to 18%, the agency added.

Produced in association with Benzinga

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