Tesla starts an EV price war with GM and Ford, analysts say

Tesla CEO Elon Musk has potentially started an electric vehicle price war with Detroit.

Musk announced Jan. 12 that he was cutting prices for Tesla EVs by as much as 20% in an apparent effort to boost demand. The price cuts will put some Tesla EVs in the range of starting prices for some upcoming and existing EVs from General Motors and Ford Motor Co. aimed at the mass market.

What's more, as Tesla slashes prices, both GM and Ford have recently raised prices for a couple of their EVs.

"Tesla cutting prices in one way is a shot across the bow," Dan Ives, managing director at Wedbush Securities, told the Free Press. "But in another way, it says they hear the footsteps of GM and Ford and that speaks volumes. Musk has owned the EV market from inception, but competition is coming from all over the world."

Ives suspects Musk's purchase of Twitter and the controversy that followed surrounding some of his statements has damaged the Tesla brand, and consequently demand for its cars. Either way, the price cuts have rattled those who own Tesla cars, other analysts say.

"We've seen a bump in consumers running appraisals on their Teslas, people fearing for their residuals and rightfully so," said Ivan Drury, senior manager of Insights at Edmunds.com.

But with signs of a recession coming, Drury said, consumers are likely to adjust their spending, in which case Musk's price slashing move might help Tesla hold market share it would have otherwise lost to GM and Ford.

GM's strategy is to 'more price points' than competitors

Tesla's price cutting also might prompt GM and Ford to reconsider their pricing strategies, Drury said.

"This cuts into pricing strategies that GM and Ford have had in the works for years," Drury said. "Vehicle pricing is essential to where and what consumers will cross shop. Additionally, by Tesla utilizing a shotgun approach to pricing versus the more targeted incentives that we see from most automakers, makes what could have been ripples in the pond more like a boulder."

Ford did not reply to a request for comment on this article. But GM spokesman David Barnas said in an email, "Offering more EVs at more price points than our competitors is at the center of our strategy. Chevrolet Bolt EV is the most affordable EV in America and is the top-selling mainstream-priced EV today. Chevrolet will launch three additional EVs in 2023 — Blazer EV, Equinox EV and Silverado EV — in the most popular segments of the market.”

GM CEO Mary Barra has also said in the past that having EVs in the $30,000 range is key to mass adoption.

Tesla does not have a media relations office and a tweet sent to Musk seeking comment was not answered.

Drury speculated that GM and Ford could do nothing to adjust their EV prices in the face of Musk's price cuts and "hope that their vehicles will do well enough on their own merits, especially since there are many reservations holders for the next wave of EV launches." But if there is a recession and if "Elon can stay out of the limelight and people's memories are short, perhaps Tesla will be able to buy back some of the EV marketshare they were about to lose," he said.

Tesla's price cutting is a 'bold offensive move'

It is not clear how long Tesla's lower prices will be in place, but the Tesla website shows the Model Y with the largest drop in sticker price, from $65,990 to $52,990, a 20% decrease. The lowest-priced Model 3 dropped 6.4% to $43,990 before a tax credit. The most expensive vehicles fell in price by as much as $21,000, including the Model S Plaid, which had a 15% price drop, according to a USA Today report.

In comparison, the 2023 Ford Mustang Mach-E compact SUV starts at $46,895 and GM's Bolt is $27,495, the Bolt EUV priced at $28,795. GM's GMC Hummer pickup and SUV both push up near six figures. The 2023 Cadillac Lyriq all-wheel-drive model arrives at dealers this spring, priced at $63,795, according to Kelley Blue Book. And, this summer, GM will bring the Chevy Blazer EV to market starting at $44,995 and the Equinox later in the year is expected to start at $30,000.

On top of the price reductions, Tesla's U.S. vehicles, along with other automaker's EVs, now qualify for an additional $7,500 tax credit as part of the Biden administration's Inflation Reduction Act. That means the Model 3 can better compete with the mass market EVs that GM and Ford are bringing to market over the next 12 to 18 months, many of which start at around $30,000.

"We believe this likely is a bold offensive move, which secures Tesla’s volume growth, puts its traditional and EV competitors in great difficulty, and showcases Tesla’s considerable pricing power and cost superiority," wrote auto analyst Emmanuel Rosner in a Deutsche Bank research note on Jan. 17. "Just as importantly, this could be the cut to end all cuts, helping reset Tesla’s 2023 estimates to a level where any further risk would be to the upside, and enabling investors to refocus on the considerable longer-term opportunity and next-gen platform, which will be presented at Tesla’s" investor day on March 1.

Ives sees it differently, saying Tesla has handed GM and Ford an opportunity "on a silver plater" to aggressively go after market share now, noting GM especially is in a "strong position" given it has EVs that now also qualify for the tax credit.

"This will be an EV arms race that plays out, but it’s not a zero-sum game," Ives said. "There will be many winners."

GM and Ford adjust their EV pricing

But Charlie Chesbrough, senior economist at Cox Automotive, said Tesla’s price cutting, "definitely puts pressure on GM and Ford though Tesla is a minor competitor with their product portfolios right now."

The big threat is with Tesla's Cybertruck, due out this year, Chesbrough said. It is a true competitor to GM and Ford, where pickups are Detroit's "bread and butter" for profitability, he said. The Cybertruck is expected to start at $39,900, according to Kelley Blue Book. GM has the 2024 Chevy Silverado EV pickup, which it started taking orders from commercial customers for this month. GM will open the order banks to retail buyers later in the year. GM has said the Silverado EV is expected to start at $39,900.

But for car buyers considering an EV sedan, the Model 3's new price, which after the tax incentive is closer to $36,000 for the small luxury car, inches closer to GM's Chevrolet Bolt, a more mainstream small car. Earlier this month, GM increased the starting price of the 2023 Bolt by $900 to $27,495. The Bolt EUV, an SUV-styling of the car, increased by $600 to $28,795. GM listed rising material costs as part of the reason for the price hike, but both vehicles are eligible for the $7,500 federal EV tax credit, which could drop the entry price for the Bolt EV to below $20,000, truly making it the most affordable EV in the U.S.

Last summer, Ford raised the starting price on its F-150 Lightning electric truck by up to $8,500 depending on the trim, also due to material costs. The 2023 Lightning starts at $55,974.

'Significant opportunities' open up for GM and Ford

Auto analyst David Whiston at Morningstar said prices probably won't sway consumers too widely one way or the other because buyers who want a specific brand or type of vehicle, will stay the course.

"It’s early to say there’s a price war. It’s also relative to each other’s vehicles," Whiston told the Free Press. "For example, I’d say the Model 3’s price cut relative to the $30,000 battery electric Equinox out this fall, isn’t much of an issue."

Whiston admits he is mixing vehicle segments because the Model 3 is a sedan and the Equinox EV is an SUV. But he said the EVs GM and Ford have out now are priced well above the Model 3’s starting price, though they are mostly not sedans.

"So I don’t see a need for GM to start cutting prices solely due to Tesla," Whiston said. "I think most consumers (who) were about to buy a Bolt or a Model 3 are still going to despite the price changes and if they didn’t, they’d probably substitute their original choice with something other than the Model 3 or Bolt due to vehicle type/function."

Ives also believes that GM has priced right most of its new EVs coming out in the next 18 to 24 months. He said they are priced at the "sweet spot" for new entry EV buyers.

"People who were going to buy a Tesla anyhow will still do so, but the vast majority of the EV customers have never owned a GM before," Ives said. "GM and Ford will go on a marketing blitz in the next few months around the EVs. Musk has created brand deterioration of Tesla through the Twitter circus ... so that creates significant opportunities (for GM and Ford) that were not there six months ago."

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Contact Jamie L. LaReau:  jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.