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The difficult quarter for Tesla and the warning of Elon Musk

By Alan Ohnsman

Tesla’s Model Y and other cars and crossovers from leading electric vehicle maker are meeting in the wake of Elon Musk’s warning of a “difficult quarter” due to production downturn in China due to severe coronavirus restrictions on cuts jobs and in the “dip” of the stock.

The base version of the Model Y rose $ 3,000, or 4.8%, this week to $ 65,990 from $ 62,990. Add a more special color, the controversial “Full Self Driving” option and taxes and the car exceeds $ 80,000. The cheapest Model 3 sedan remained flat at $ 46,990, while the Long Range version was $ 2,500 more expensive at $ 57,990. The SUV Model X jumped $ 6,000 to $ 120,990 and the Model S sedan now costs $ 104,990, an increase of $ 5,000.

Tesla is used to changing the prices of its cars, without explaining why. In this case, however, the cost of raw materials for the production of batteries (aluminum, steel) as well as the lack of semiconductors cause headaches in all car manufacturers. Tesla’s strong impact on high-income consumers suggests that price increases will not repel a large number of buyers.

“Indeed, the brand is attracting a wealthy audience, as evidenced by the fact that the Model Y, which had a base price of just under $ 63,000 until this week, sold about 200,000 cars in 2021,” says Ed Kim. President of AutoPacific Car Research Company. “No other SUV at the same price level even comes close to the sales numbers of the Model Y. So far, Tesla has dominated relatively easily in the electric vehicle sector by continuing to attract large numbers of customers who are willing to spend a respectable amount of money to acquire its vehicles “.

Tesla’s price hikes come at the end of a difficult second quarter for the company, during which Musk took over Twitter, made open political statements, announced a plan to cut jobs in the automotive industry by 10% and asked staff to stop teleworking. In addition, the company’s production at the Shanghai plant fell beyond the CEO’s estimate of two months ago, while vehicle sales in China also fell.

Strict restrictions imposed in China to prevent an outbreak of the pandemic in late March led to stagnation (in early April) and a drop in production by May, below the plant’s capacity. Production may return to near-normal levels in June, although the plant will produce just 115,300 cars in the second quarter, a much lower performance than the 178,887 vehicles it produced in the first quarter of the year, according to Reuters. citing evidence from the Chinese authorities. It is unclear whether the slowdown in production in China will lead to a significant reduction in revenue compared to the first quarter of 2022, as the company also increases production at its new plants in Berlin and Austin. But if revenues fall, it will be the first time this has happened for two consecutive quarters since the third quarter of 2019.

“Given that Tesla is heavily dependent on its production in China (more than 40% of world production is in the Far East) and more than 50% of its profits also come from China, it is reasonable to create local lockdown problems, “said Morgan Stanely analyst Adam Jonas in a note. “However, Tesla has proven in the past that it can make up for lost ground by increasing vehicle delivery at the end of the quarter. In a week or two, it can squeeze production in three months. he could make up for them in the results of the quarter, “he estimates.

According to data released last week by the National Highway Traffic Safety Administration, Tesla vehicles with partially automatic driver assistance systems are responsible for 70% of the 392 crashes in the last 11 months involving such vehicles.

Concerns about the recession, which Musk recently rekindled, hit the company in the quarter, contributing to a 41% drop in shares since March 31, while the value of the “king of technology” and richest man in the world has fallen by $ 14.2 billion in the same period. Tesla rose 1.7% to close at $ 650.28 on Friday.

The current average price for an electric vehicle is $ 64,388 in the US, while the corresponding average price for conventional new vehicles is $ 47,148, according to the Kelley Blue Book. The higher price of the electric vehicle already reflects Tesla’s dominance in the market, says Michelle Krebs, executive analyst at Cox Automotive.

“However, the No. 1 obstacle on the way to the wider adoption of electric vehicles by consumer consumers is the price of the vehicle,” adds Krebs. “But I’m not sure this is true for consumers who prefer Tesla. They are a separate category. They do not shop like that in general and vaguely. They want – and choose – Tesla.”

Rising prices for Tesla models could push potential buyers compared to competitors’ EVs, such as Ford’s Mach-E crossover, which starts at $ 43,895, and Hyundai Motor’s Ioniq 5, priced from $ 39,990 and the Kia EV6 with a base price of $ 40,900. The three models also qualify for a $ 7,500 federal tax credit, which Tesla buyers are no longer eligible for, as the company has long since exceeded the eligibility threshold. Additionally, customers in California may receive a $ 2,000 discount on versions of these models for less than $ 45,000 – nor do Tesla customers enjoy this privilege, as the company does not currently have a vehicle that meets this requirement. requirement.

Given the lower EV production capacity and lower sales recorded by Tesla’s competitors, its more expensive prices are unlikely to affect US operations in the near future, although Elon Musk’s company will eventually be called upon to deal with this as well. , emphasizes Jessica Caldwell, executive analyst at Edmunds.

“Tesla’s share of the electric vehicle market will only decline over time as the market grows with the launch of new vehicles from various brands. It would therefore be beneficial for Tesla to start targeting the lower limit – “their financial capabilities – buyers to make Tesla an affordable brand,” she points out. “This move will prove vital when electric vehicles become more mainstream.”

Read also:

* Tesla: 273 vehicle collisions since July, involving the use of driver assistance systems

* Elon Musk: Tesla’s total staff will increase despite the cuts

Source: Capital

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