As a direct result of Tesla’s actions, the cost of purchasing an electric car is decreasing. 

It is beneficial for people who buy automobiles, but it could be more useful for the profits of automobile manufacturers, even if these revenues are secondary for the time being. Manufacturers of cars have to protect their market share.

Price Drop:

Early in January, electric car manufacturer Tesla (ticker: TSLA) announced that it would be lowering its prices. 

Its Model Y crossover car, the most popular electric vehicle (EV) in the United States, had its price drop by as much as $13,000. 

• On Monday, Ford Motor (F) followed suit by reducing pricing for the Mach-E by as much as $4,900, making it the latest company to do so.
• “In this electric vehicle arms race, Tesla is uniquely positioned around scale, brand, battery technology, and the Musk DNA,” Wedbush analyst Dan Ives wrote in a report published Monday following Ford’s cuts. 
• “While others in an all-out Game of Thrones war fiercely compete for market share,” Ives added. 
• “Tesla is uniquely positioned around scale, brand, battery technology, and the Musk DNA in this EV arms race.” 

Read: General Motors Outsells Toyota in the US

GM & Ford:

Both Ford and ourselves feel that GM will have to reduce their profit margins to raise their sales volume during this critical period. 

They will not lose electric vehicle (EV) clients due to pricing, mainly when EV tax incentives are being considered, and the 313 area code is wagering its future on EV growth.

• The area code for Detroit is 313, and its city name is Detroit. General Motors (GM) and Ford have ambitious electric vehicles (EVs) ambitions. 
• Both companies have set a goal to reach annual sales of around two million electric cars by the middle of this decade. 
• While maintaining their gasoline-powered automobile businesses, both companies want to increase their total market share and grab market share away from other automakers.

To this day, GM has not reduced its pricing. The business said on Tuesday that its electric vehicles’ prices are reasonable, and demand is still high. 

In addition, GM currently offers some of the most reasonably priced electric cars. 

Model Y & Mach-E

Comparatively, the starting price of a competing electric vehicle, the Model Y, is around $53,000, while the starting price of the Mach-E is approximately $46,000.

John Murphy, an analyst at BoA Securities, thinks that the choice made by GM makes more sense than the one Ford made.

• Murphy said in a report handed out on Monday that “the rationale seems strange to us.” 
• “Both Tesla and Ford are pointing to demand higher than supply, which indicates that lowering pricing would directly impact the bottom line now and would needlessly damage future earnings power.”
• For Tesla to be eligible for the $7,500 tax credit that was established as a component of the Inflation Reduction Act, the base price of its Model Y electric vehicle has to be reduced to an amount lower than $55,000. 
• The Mach-E had a more significant number of trims than the Tesla Model Y, which was of comparable size and qualified for the credit before it was reduced.

Read: BMW Introduces a Talking Electric Car, Mercedes-Benz Increases Charging

Murphy Prediction:

Murphy predicts that for Ford to maintain the same overall operating profit with the new, lower pricing, the company will need to sell an additional 90,000 cars, starting with a base of 270,000. 

• Murphy projected that Ford would make a profit of 5% on sales of 270,000 Mach-E vehicles at the previous pricing.
• The automobile manufacturers that aren’t eligible for the $7,500 tax credit that was included in the Inflation Reduction Act are the ones who are under the most significant pressure to lower their prices. 
• To meet the requirements of this regulation, electric vehicles (EVs) must, among other things, be built in North America. 

This rule does not apply to a significant number of electric cars, including several that are produced by Audi, Polestar Automotive (PSNY), Kia, and Hyundai Motor (005380, Korea).

The base price of an Audi e-Tron is around $70,000, which is much more than the price of a similar Model Y.

Read: Tesla: Everything is on sale

Discount on Cars:

According to a news outlet, Tesla has recently offered existing Tesla owners a choice between a $3,000 discount or free supercharging for three years if they trade their vehicles for a new Tesla. 

It represents a significant step forward for Tesla in terms of making EVs more affordable. A request for comment from Tesla about the incentive needs to be met with a response.

Because it generates more money from selling electric vehicles, Elon Musk’s firm can afford to exert pressure on its competitors. 

• In 2022, Tesla had an operating profit margin of more than 16 percentage points. In 2022, General Motors had an operating profit margin of 9.3%. 
• Ford’s margin would be about 7% in 2022. On Thursday, Ford will release its financial results for the fourth quarter.
• Investors are pleased with Tesla’s decision to lower its prices. 
• Since the company slashed car pricing in China on January 5, its stock price has increased by almost 51%, while the Nasdaq Composite has risen by approximately 11% over the same period.
• Investors in Ford have yet to respond well to the news. 

Read: Hyundai EV Plans + Automotive Industry Analysis and Forecasting

The announcement of the price reduction resulted in a loss of 2.8% in the stock price for the company’s shares on Monday, while the overall market was down 1.3% on that day.

In trading on Tuesday, Ford stock increased by 3.3%, which may have been encouraged by GM’s solid profits for the fourth quarter, while GM stock increased by 6.8%.