Tesla has shifted from targeting luxury car makers such as BMW and Mercedes-Benz to taking on mass-market manufacturers such as Ford and Renault. While Tesla has been successful in attracting customers from luxury players with its high-end electric vehicles, it has struggled to make inroads in the mass market due to production constraints and higher pricing. However, last year, Tesla opened two new plants and doubled its car factory footprint, signalling its intention to compete more aggressively in the mass-market segment. This move has made executives at Ford and Renault nervous, with Ford’s CEO Jim Farley commenting that “price wars are breaking out everywhere”.
Luxury car makers such as Mercedes-Benz are also feeling the pressure from Tesla’s pricing strategy, with the company slashing the stickers on its EVs in China last year, shortly after Tesla started cutting prices. However, German executives have been reluctant to compromise brand value for volume, and Mercedes-Benz CEO Ola Kallenius has expressed a desire to move further upmarket. Tesla’s aggressive pricing strategy could also impact the company’s brand value, which is particularly important in the premium end of the market where brand perception and social status are key factors in sales.
Despite Tesla’s pricing cuts, its profit margins have remained relatively strong, in part due to its economies of scale. In contrast, Ford and Renault are still investing heavily in their electric vehicle businesses and are not yet able to match Tesla’s scale. This has put pressure on both companies to discount their electric vehicles to stay competitive, with Ford recently discounting its Mustang Mach-E SUV by about $4,500 on average.
Renault is planning to separate its EV and combustion engine businesses and is even considering an IPO for its plug-in car and software operations. The company’s CFO has acknowledged that overall pricing may be “a little softer” in the second half but stated that there are no plans for drastic changes. Despite this, investors sold off the company’s stock on Thursday, indicating concerns over its ability to compete with Tesla’s aggressive pricing strategy.
