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Tesla’s Difficult Quarter Means Price Rises, Job Losses and Production Stall in China

Tesla's Difficult Quarter Means Price Rises, Job Losses and Production Stall in China

Tesla’s Model Y, the electric car maker’s bestseller, and versions of its other cars and crossovers are getting more expensive in the wake of CEO Elon Musk’s warning of a “difficult quarter”, a period of slumping production in China due to strict Covid rules, job losses and a sharp drop in the value of its shares.

The base Model Y rose $3,000, or 4.8%, from $62,990 to $65,990 this week. Add a color other than Pearl White or Silver Metallic, Tesla’s controversial “Full Self Driving” option and taxes and customers will spend over $80,000. While the cheapest Model 3 sedan was unchanged at $46,990, the Long Range version of the car went down $2,500 to $57,990. The Model X SUV rose $6,000 to $120,990 and the Model S sedan now costs $104,990, up $5,000 from $99,000.

Tesla routinely changes its vehicle prices and rarely explains why. In this case, the cost of raw materials for batteries, aluminum, steel, as well as the supply of semiconductors, has caused headaches for all car manufacturers. The brand’s strong appeal to higher-income consumers suggests the price hikes aren’t likely to repel too many buyers.

“The brand is attracting a well-heeled audience, evidenced by the fact that Model Y, which had a suggested retail price of just under $63,000 until this week, sold nearly 200,000 units last year,” said Ed Kim, president of industry researcher AutoPacific. “That’s remarkable, given that no other SUV with comparable prices even comes close to selling at those volumes. Tesla has so far had little trouble continuing to dominate the EV space and finding huge numbers of customers willing to spend big on their products.”

The price changes come as the Austin, Texas-based company ends a rocky second quarter in which Musk simultaneously moved to take over Twitter, became openly politically partisan and announced plans to cut about 10% of Tesla’s salaried jobs and staff. oblige them to stop working remotely. The company also lost significantly more production at its Shanghai factory than Musk had anticipated two months ago and saw car sales in China temporarily halt.

Draconian public health rules designed to halt the spread of the coronavirus, which began in late March, temporarily stalled at Tesla’s factory in early April, holding production well below capacity until May. Production could return to roughly normal this month, although the plant is likely to produce just 115,300 units in the quarter, up from 178,887 in the first three months of the year, according to Reuters, citing data from the China Passenger Car Association. It’s unclear whether the slowdown in China will lead to a significant drop in sales from the first quarter of the year, as the company also ramps up production at new plants in Berlin and Austin. If it does, however, it would be Tesla’s first consecutive decline since the third quarter of 2019.

“Given Tesla’s extraordinary reliance on Chinese manufacturing (>40% of global production) and profitability (we estimate that over 50% of Tesla profits come from China), the disruption from local Covid lockdowns is understandable, if not completely in consensus predictions. right now,” Morgan Stanely analyst Adam Jonas said in a research note this week. “But as Tesla has shown throughout its history, it can make up for a significant loss with accelerated deliveries through the end of a quarter, where disproportionate amounts of production from a full quarter can occur in the last two weeks. In addition, what could be lost in the second quarter could only bring pent-up sequential tailwinds to the third quarter results.”

Separately, Tesla also stood out in new data released this week by the National Highway Traffic Safety Administration, showing that the company’s vehicles with Autopilot accounted for 70% of the 392 accidents involving cars and trucks in the past 11 months. which were equipped with partially automated driving functions.

Recession concerns, recently fueled by Musk in leaked memos, also hit the company this quarter, contributing to a 41% drop in the value of its stock since March 31. fortune of Technoking Musk, the world’s richest person, at $14.2 billion.

Currently, the average electric vehicle in the US sells for $64,388, compared to an average transaction price of $47,148 for all new cars and trucks, according to Kelley Blue Book. That higher EV price already reflects Tesla’s dominance of that market, said Michelle Krebs, executive analyst for Cox Automotive.

“According to our studies, the No. 1 hurdle on the road to electric vehicle adoption is car price,” Krebs says. “However, I’m not sure if that’s true for Tesla buyers. They are a unique couple. They generally don’t shop around. They just want a Tesla.”

Tesla’s price increases, especially for Model Y, may lead some potential buyers to consider electric rivals, including Ford’s Mach-E crossover, starting at $43,895, Hyundai Motor’s Ioniq 5, priced from $39,990, and Kia’s EV6 with a base price of $40,900. The three models also qualify for a $7,500 federal tax credit that Tesla buyers no longer get, as the company long ago surpassed the maximum on qualifying vehicles. In addition, California customers can receive a $2,000 discount for versions of those models priced below $45,000 — a perk that Tesla customers also don’t receive because the company doesn’t currently have a product that meets that requirement.

Given Tesla’s lower production capacity and electric vehicle sales from Tesla’s competitors, the higher pricing is unlikely to impact US operations in the near term, although the company will eventually have to address it, said Jessica Caldwell, executive analyst for Edmunds.

“Tesla’s market share in the EV space will only decline over time as this market swells with new products from a variety of brands, so it would be beneficial for Musk’s team to focus on the lower end of the market.” aiming to position Tesla as a brand is both achievable and ambitious,” she said. “This will be important as EVs become more mainstream.”

Tesla’s price increases this week were first reported by Electreka site for electric vehicle enthusiasts.