Jan 26 (Reuters) – Elon Musk has a playbook for Tesla (TSLA.O) He believes there will be a “severe” recession: putting pressure on competitors with discount sticker prices and cutting costs on everything from parts to logistics.
In a conference call to discuss Tesla’s fourth-quarter results, Musk and other executives outlined plans to reshape the electric vehicle (EV) maker’s pricing after cutting prices by up to 20%, in what some analysts see as the first shot of a price war. .
Part of the plan includes expanding production at Tesla’s new plants in Berlin and Austin, Texas, and increasing the company’s domestic production of batteries because of economies of scale, executives said.
But Chief Financial Officer Zachary Kirkhorn said the company would “hit all other areas of cost overruns and costs built up for years of Covid-related uncertainty.”
That means running Tesla factories leaner with fewer items in inventory, cutting shipping and logistics costs and negotiating lower prices for parts, he said.
Among its suppliers, Tesla buys batteries from Japan’s Panasonic (6752.D) and China’s CATL (300750.SZ)and sourced the massive presses it used from Italy’s ITRA Group to take the cost and complexity out of production.
Based on data collected from Tesla Model 3 sedans and Model Y SUVs, the company said it is cutting costs by redesigning components of the battery and electric motor systems and removing features that owners don’t use.
Bill Russo, founder of China-based consultancy AutoMobility, said Tesla has already made gains in cost competitiveness by taking a page from consumer electronics manufacturers and driving simplified hardware designs for its electric vehicles.
“You can offset some of the margin hit from pricing with the large scale and simple electronic architecture,” Russo said. “This is how they try to win the game.
Meanwhile, Kirkhorn said the cost of lithium in EV batteries will be higher in 2023 than last year, hitting Tesla’s rivals who are still losing money on EVs.
“My guess is that if the recession is a serious one, which I think it probably will be, but I believe it isn’t, it will lead to a meaningful reduction in all of our input costs,” Musk said. “So, we expect to see deflation in our input costs, which will lead to, yes, better margins.”
Profitability is the key
Tesla said Tuesday it would invest More than $3.6 billion It plans to expand its Nevada factory complex and ramp up output of battery cells to produce enough to power 2 million vehicles annually.
Tesla predicts it will sell 1.8 million EVs this year, representing sales growth of 37%. That annual number could be as high as 2 million vehicles excluding external shocks, Musk said.
Tesla made an average profit of $9,100 per vehicle sold in the fourth quarter, down 6% from the previous quarter, but still higher than established rivals. Tesla’s third-quarter profit was seven times that of Toyota Motor Corp (7203.D)For example.
Tesla earlier this month cut prices by up to 20%, expanding the range of its lineup that qualifies for $7,500 per vehicle in tax credits in the US.
But analysts have focused on how well Tesla can maintain profitability, excluding debts, and the gross margin on vehicle sales.
Kirkhorn said the metric is up more than 20% by 2023, with the average price of its vehicles above $47,000 even after rebates. By comparison, the average price of a new vehicle on the U.S. market in December was more than $49,500, according to Kelly Blue Book.
Cutting costs is also key to Tesla’s next phase of expansion, which Musk hinted the company will outline at its investor day in March: plans for an affordable EV that analysts expect to cost less than $35,000.
Tesla plans to release an updated version of the Model 3 sedan codenamed “Highland” later this year, focused in part on lower production costs, Reuters reported.
The company’s average cost per vehicle in the fourth quarter, including all types of expenses, was nearly $44,000.
“Price really matters. There are a lot of people who want to buy a Tesla, but can’t afford it,” Musk said.
Reporting by Kevin Krolicki in Singapore and Abirub Roy in San Francisco; Additional reporting by Norihiko Shirozu in Beijing; Editing by Kenneth Maxwell
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