Some manufacturers are responding to Tesla’s significant discounts with their own price reductions.
Cutting the price of electric cars would be “not healthy” for Europe’s car makers while profits are still hard fought, according to Luca de Meo, Renault Group CEO and new chairman of European car industry lobby group the ACEA.
Tesla cut prices of its Model 3 and Model Y best-sellers by up to £8000 (AUD$13,800) in the UK as part of global redrawing of its price lists earlier in January, prompting similar responses from Ford in the US on the Mustang Mach-E and Xpeng in China on two models.
“I think that a battle on pricing on electric cars right now when we’re starting operations isn’t the best thing that could happen to the industry,” de Meo said. “Because we have to invest, we have to generate a margin for electric cars. Otherwise this will not become very healthy business for the industry.”
Car makers have struggled to contain the rising costs of battery materials in recent months, leading to price increases. Renault, for example, has increased the base cost of the Megane E-Tech Electric since launching it last year.
De Meo said batteries accounted for 40 per cent of the cost of an electric car, while 80 per cent of the battery cost was raw materials. “Everyone is trying to protect their margin. The cost of electric vehicles is still relatively high,” he said.
Ford this week cut the price of the Mach-E in the US by up to $5900 in response to Tesla’s move.
Ford CFO John Lawler said last year that profits on the Mach-E had been “wiped out” by rising commodity prices, but the company has been working to cut production costs on the SUV which is expected to launch in Australia late this year.
De Meo said he didn’t think the cost reductions were “structural”, meaning made in response to falling production prices.
Tesla has claimed that it was able to make the price cuts because of efficiencies in building the Model Y and Model 3, which are built in Shanghai, China.