Tesla shakes up electric vehicle market with its aggressive prices
Delhi : After the EV manufacturer aggressively dropped vehicle pricing amid a slowing economy, suppliers to Tesla Inc. are preparing for pressure from Chief Executive Elon Musk and his team to further reduce their prices, according to industry officials who work with the automaker and its suppliers.
The comments made by Tesla Chief Financial Officer Zach Kirkhorn last month that the manufacturer was "attacking every other area of cost," including the supply chain, and will work closely with suppliers, were interpreted as foreboding by the suppliers. Musk suggested that a recession may result in "significant decreases" in practically all of Tesla's input prices during the company's earnings conference call last week.
When (automakers) lower vehicle pricing, it is never beneficial for suppliers because the pressure builds, according to Dan Sharkey, a lawyer who represents suppliers to Tesla and other automakers. I don't like it since I know they'll try to extract it from one of us some day.
The co-founder of Brooks Wilkins Sharkey & Turco continued, "My message is, there's not going to be any room there. "Many vendors are having financial difficulties."
Due to confidentiality agreements, the majority of Tesla's suppliers, including battery manufacturers Panasonic LG Energy Solution and CATL as well as Italian casting machine manufacturer IDRA Group, refrain from discussing the automaker in public.
After dramatically lowering vehicle pricing last month, Tesla is now attempting to slash costs, which has prompted American rival Ford Motor Co. to do the same. That poses a danger to Tesla's profit margins, which are the highest in the sector.
The pressure put on suppliers as a result to lower their prices is not new, but an executive at a Tesla supplier who asked not to be named claimed that during the COVID-19 outbreak, the EV leader had prioritised delivery over pricing and was even willing to pay more to receive parts faster. He is concerned that could change in light of remarks made on the earnings conference call from last month.
Further information regarding Tesla's suppliers was requested, but Tesla did not react right away.
While suppliers were unable to fully pass through greater costs and saw their margins decline, unlike Tesla and other automakers, which benefited from higher vehicle pricing and strong margins during the pandemic. In the third quarter of last year, automakers' profit margins were roughly 3 percentage points greater than those of suppliers.
More price reductions would hurt in a market where some suppliers are already having trouble, according to industry insiders.
