The move of the ‘rich guy’ Tesla makes small electric car companies afraid: Willing to sacrifice profits to lower prices, drowning rivals to death

Tram Ho

According to CNBC, electric vehicle company Rivian Automotive has had to lay off 6% of its employees to maintain a budget for the price war started by Tesla.

Rivian had a very successful initial public offering (IPO) in 2021 with $12 billion in funding. But since then, this business has lost nearly 90% of its market capitalization, causing the management to rethink its expansion plan in the context of needing to be profitable.

As of the end of September 2022, the company had about $13.8 billion in cash and a loss of $5 billion in the first three quarters of last year. In December 2022, Rivian also said it could not reach its target production of 25,000 units for the whole year.

The company currently has about 14,000 employees and the layoffs will equate to about 840 employees being fired.

This is the latest evidence that Tesla’s price war is having a negative impact on the electric vehicle industry.

Động thái của 'gã nhà giàu' Tesla khiến các công ty xe điện nhỏ lo sợ: Sẵn sàng hy sinh lợi nhuận để hạ giá bán, dìm đối thủ tới chết - Ảnh 1.

Rivian factory workers

Squeeze people with meat

In the same opinion, Reuters news agency said that Tesla is relying on its leading position in the electric vehicle market as well as the huge profits from it to use as a weapon to attack and lower the price of rivals.

According to Reuters, Tesla is leading the market in terms of average profit per electric vehicle sold. Data for the third quarter of 2022 shows that Elon Musk’s empire earned $ 15,653 in average net profit per car sold, twice that of Volkswagen, four times that of Toyota and five times of Ford.

This has created a huge advantage for Elon Musk when he decided to use price blows to crush new players entering the market. According to Reuters, the move has strongly affected the strategy of prioritizing profits over expansion of output by companies such as GM, which has been implemented since the 2008 crisis and intensified during the pandemic, in the car market. a little bit.

To be able to lower production costs even further, Tesla has invested heavily in production technology such as applying large frame molds instead of producing small parts. The company also acquired battery factories and many other component suppliers in the supply chain, thereby standardizing quality and designing for mass production.

In fact, the strategy of using cost advantages to drive down prices is not new in the auto industry.

Động thái của 'gã nhà giàu' Tesla khiến các công ty xe điện nhỏ lo sợ: Sẵn sàng hy sinh lợi nhuận để hạ giá bán, dìm đối thủ tới chết - Ảnh 2.

Founder Henry Ford dropped the price of his Model T at the turn of the 20th century when his improved manufacturing process increased production. During the 1980s and 1990s, Toyota was able to cut costs through a lean production process, at the right time and place (Lean Production System), thereby creating competitive prices with American rivals.

However, the weakness of the above lean manufacturing process is that it is very vulnerable when the global supply chain crashes. Despite that, Reuters news agency said that Toyota is now having to push this strategy again under pressure from Tesla.

Earlier in 2022, demand exceeded supply in the electric vehicle market, prompting a series of car manufacturers to enter the market, while many models increased in price because the demand was too great. For example, Ford had to increase the price of its F150 electric pickup truck by 40% in the past year.

Will Vinfast also reduce the price?

According to Reuters, 2023 will be a win-win year for the electric vehicle industry when a series of companies join the war and accept to burn profits to expand market share. However, this is what causes supply to gradually exceed demand and this is when consumers will have to choose which brands will survive.

Speaking to Reuters news agency, electric vehicle expert Warren Browne predicts North American market demand will reach 2.8 million units a year by 2026. But at this point, the output of auto factories. electricity in North America has reached more than 4.5 million units/year.

In China, the government’s cessation of subsidies for the electric vehicle industry will quickly cause many businesses in the industry to plunge into a price war with Tesla when Elon Musk has reduced prices up to 2 times here in 2022.

Tesla has chosen a strong attack, using flesh to bully new players, thereby pushing businesses with poor profit margins out of the electric vehicle market. The market pie is quite large, but there are also too many participants, so the fewer players there are, the more profitable the winner will be ,” said Bill Russo, an expert at Automobility consulting in Shanghai.

The electric car brand Xpeng in China, which once benefited from Tesla’s high prices, now has to reduce prices to retain customers, but the company’s financial situation is not good.

Động thái của 'gã nhà giàu' Tesla khiến các công ty xe điện nhỏ lo sợ: Sẵn sàng hy sinh lợi nhuận để hạ giá bán, dìm đối thủ tới chết - Ảnh 3.

The financial statements show that Xpeng’s average net profit per vehicle sold in the third quarter of 2022 is only about $4,565 per vehicle, and if net profit is calculated, the company loses $11,375 per vehicle. products sold.

We hope more people will access the company’s products when the company has lowered the price ,” Xpeng’s statement reads.

Similarly, Vietnam’s Vinfast also said it will use a price strategy to fight Tesla.

In contrast, China’s leading electric car company, BYD, announced a product price increase from January 1, 2023 after the country ended incentives for the electric car industry.

Although BYD has yet to respond to Tesla’s price drop, with a net profit of $5,456 per vehicle sold, the company certainly has more room to fight than Volkswagen, GM or Toyota.

*Source: CNBC, Reuters

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Source : Genk