Tesla Joins GM and Ford in Cautious Approach to EV Production Expansion
SAN FRANCISCO, Oct 19 – Tesla announced on Wednesday its plans to exercise caution in expanding its electric vehicle (EV) production capacity, following a similar move by General Motors (GM) and Ford. The decision reflects concerns about economic uncertainties and a potential slowdown in demand for EVs.
Tesla CEO Elon Musk expressed worries that higher borrowing costs may make it difficult for potential customers to afford their vehicles, despite significant price cuts. He stated that he would wait for clarity on the economy before ramping up production at Tesla’s planned factory in Mexico. Musk also acknowledged the financial pressures faced by American workers, citing “paycheck-to-paycheck” conditions.
Musk’s comments came in response to warning signals from other automakers and EV startups, causing Tesla’s shares to decline by 8%. GM recently announced a one-year delay in the production of Chevrolet Silverado and GMC Sierra electric pickup trucks due to a flattening demand for EVs. Similarly, Ford temporarily reduced one of three shifts at its plant that manufactures the electric F-150 Lightning pickup truck. In July, Ford slowed its EV ramp-up efforts, redirecting investment towards commercial vehicles and hybrids.
The concerns surrounding the EV industry were evident in the performance of EV startups Lucid and Rivian, both of which experienced losses on Thursday. Lucid reported a nearly 30% drop in third-quarter production and only a marginal increase in deliveries, despite offering significant discounts on their Air luxury sedan. Rivian, which specializes in electric pickup trucks and SUVs, disappointed investors by refraining from raising its full-year production forecast, despite better-than-expected third-quarter numbers.
Experts believe that the potential slowdown in EV demand is mainly driven by pricing and affordability rather than a rejection of EVs. As prices of EVs decrease and lower-priced variants become available, the dip in demand is expected to improve. Automakers have substantial investments tied to the EV market, and concerns about slowing demand coincide with supply chain constraints that have disrupted production plans.
A Reuters report from July highlighted that the U.S. market was not expanding rapidly enough to prevent unsold EVs from accumulating at several auto dealerships. To combat this, Tesla, with its industry-leading profit margins, initiated aggressive price reductions, compelling other automakers to follow suit. However, Musk noted that rising interest rates resulting from efforts to combat high inflation significantly offset the price reductions, deterring consumers who wish to transition away from traditional gasoline-powered vehicles.
Musk emphasized that if interest rates decrease, he would accelerate the expansion of Tesla’s Mexico factory. However, current market estimates suggest that interest rates in the United States are not expected to decrease until June 2024, dampening Musk’s hopes. Recent robust economic data further suggests that the central bank will maintain higher interest rates for an extended period.
As the EV industry navigates these challenges, it remains to be seen how automakers will adapt their strategies to address affordability concerns and ensure sustained demand.