Price cut 6 times this year, deteriorating profitability
Low-end challenge such as Hyundai Motor and GM
Impact of price competition on the battery industry
US Tesla’s first quarter (January to March) net profit decreased by 24% compared to the same period last year. This can be attributed to the aggressive price-cutting policy. Industry leader Tesla’s successive price cuts are accelerating the launch of low-cost electric vehicles by global electric vehicle brands. Even the battery, which determines the price of a vehicle, is affecting the entire electric vehicle ecosystem.
Tesla announced on the 19th (local time) that its first quarter sales and net profit were $23.329 billion (about 31.42 trillion won) and $2.513 billion (about 3.34 trillion won), respectively. Compared to the first quarter of last year, sales increased by 24.4%, but net profit decreased by 24.3%. It means selling more and leaving less.
The ‘gross profit margin’, which indicates how much profit was earned from sales, was also 19.3%, far below the market expectation (22.4%). The gross profit margin in the first quarter of last year was 29.1%. When such results were announced, Tesla stock fell 2.0% from the previous day in the regular market and 6.1% in after-hours trading to $169.65.
The sharp decline in Tesla’s profitability is interpreted as a result of a series of lower vehicle prices. Tesla has cut prices six times this year alone in the US market. Even a day before the earnings announcement, the Model Y was cut by $3,000 and the Model 3 was cut by $2,000, respectively. As a result, Model 3 is priced at $39,900 based on the cheapest trim, and Model Y is priced at $46,990. Compared to the beginning of the year, Model Y is 20% cheaper and Model 3 is 11% cheaper.
Tesla’s policy change is to shake off the challenges of its competitors. Tesla, which had achieved a high rate of return with a strategy for mass production of small items, has now shifted its strategy to maintain a high market share instead of giving up some profits. There is an analysis that one of the reasons for the price cut is that governments around the world have begun to cut subsidies for electric vehicles all at once.
Other finished car makers responded to the ‘Tesla price competition’ by announcing the release of low-end models. In the third quarter (July-September), GM announced the launch of the $30,000 electric vehicle, the Equinox EV. Renault and Volkswagen are expected to release the ‘Renault 5EV’ and ‘ID.2all’, which are expected to cost 25,000 euros (about 36 million won), in 2024 and 2025, respectively. Hyundai Motor Co., Ltd. commissioned Gwangju Global Motors (GGM) to launch the Casper EV (tentative name), a compact electric vehicle priced at 20 to 30 million won (estimated), and Kia to launch the EV3 (tentative name), a compact electric vehicle priced at 30 million won (estimated) next year, respectively. known to do
The top priority to lower the price of electric vehicles is to lower the price of batteries. Batteries account for 30-40% of the cost of electric vehicles. A new focus is on lithium iron phosphate (LFP) batteries, which have been mainly made by Chinese companies. Although it has lower efficiency than ternary batteries such as nickel-cobalt-manganese (NCM) from the three domestic battery companies (LG Energy Solutions, SK On, and Samsung SDI), it is relatively cheaper. As battery efficiency has increased through recent technology development, non-Chinese companies are also looking for LFP.
It is known that Tesla will use LFP batteries in the electric truck ‘Semilight’ and the entry-level electric passenger car ‘Model 2’ (tentative name). It is expected that LFP batteries will also be produced at a factory that Ford of the United States will build in Michigan, the United States, in partnership with CATL, a Chinese battery maker.
An industry insider said, “As the lineup of electric vehicles diversifies, there is a trend to apply LFP batteries to low-end electric vehicles for city driving.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.