In January, Tesla Inc. launched the opening salvo in what experts have described as an EV price war when it slashed its pricing by as much as 20%.
Last week, Ford Motor Co. fired back.
On Monday the Dearborn, Michigan, automaker announced across-the-board price cuts on the all-electric Mustang Mach-E. The cuts ranged from $600 to $5,900, with the largest reduction bringing the price of the GT extended range version of the Mach-E down to $63,995. The vehicle's pricing now ranges from $45,995 to $63,995. Previously, it topped out at just below $70,000.
Existing Mach-E customers who are waiting to take delivery of their vehicle will automatically receive the reduced price, Ford said. The automaker will reach out directly to customers with a sale date after Jan. 1, 2023, who already have their vehicles. Meanwhile, Ford's financing arm, Ford Credit, will offer interest rates as low as 5.34% on Mach-Es ordered by April 3.
The move follows a previous price increase on the Mach-E last year, and as Ford has boosted prices on its all-electric F-150 Lightning. Ford also said it would be boosting Mach-E production at its Cuautitlán, Mexico, plant to 130,000 units this year from 78,000 units in 2022.
"At Ford, we want to make EVs more accessible, so we’re increasing #MustangMachE production & reducing prices across the Mach-E lineup," CEO Jim Farley said in a statement on Twitter. "Scaling will shorten customer wait times. And with higher production, we’re reducing costs, which allows us (to) share these savings with customers."
Ford's stock closed down 2.86% to $12.89 per share Monday.
“Wall Street might fret about it, but it’s a necessary near-term pain for long-term gain," said Dan Ives, an equity analyst at Wedbush Securities. "Tesla has a lot more flexibility on the margin front, but Ford, their back’s against the wall. They need to do the price cuts.”
Sacrificing margins for volume
The move, while applauded by some analysts, may raise some questions among investors about profitability, as Ford executives previously have said that higher commodity costs wiped out the Mach-E's profitability. Like Tesla, Ford is aiming to make up for it by boosting volumes.
But Bloomberg reported that Ford has less wiggle room than Tesla, which reported a gross automotive margin of 25.9% in the fourth quarter. Still, Ives thinks Ford made the right call.
"The EV price war is underway. The first shot fired was Tesla with their significant price cuts on the Model Y and 3. And Ford can't just sit there idle watching this," he said. "This is Ford sacrificing near-term margins for volumes. And I believe that’s a smart poker move that Farley needs to make at this juncture."
He noted that the cuts come against the backdrop of a darker macroeconomic environment, significant competition in the EV space, costs finally beginning to ease in the supply chain and EV tax credits created by the Biden administration's Inflation Reduction Act.
Those credits may have been a consideration: the price cuts bring a few Mach-E trim levels under a $55,000 price cap for cars to qualify.
Jessica Caldwell, executive director of insights at auto information site Edmunds.com, said Ford's move was unsurprising given that the Mach-E competes directly with Tesla's Model Y and 3: “If anyone was going to be hurt by Tesla’s price cut, it was this model."
Still, she noted that Ford's situation is much different than Tesla's, which appeared to show signs of softening demand when it ended the year with a growing gap between the vehicles it produced versus the vehicles it delivered. Ford, on the other hand, has had low inventory on many of its models amid industrywide supply constraints.
And price cuts are likely to bolster demand, so Ford will need to increase Mach-E output, she said: “It’s, at least from an optics standpoint, good for them. I just wonder if they would have done it without Tesla’s move first.”
Ford executives acknowledged the competitive pricing pressure they're facing, according to comments reported by Bloomberg. “Our competitors are also adjusting their prices,” said Marin Gjaja, chief customer officer for Ford Model e. “As we look and want to stay competitive in the marketplace, we’re having to respond.”
Garrett Nelson, vice president and senior equity analyst at CFRA Research, said that the Mach-E price cut was a "direct response" to Tesla.
"Tesla’s price cut was a major blow to the prospects of competing EV models, and the Mustang Mach-E directly competes with Tesla’s Model Y. Ford has quietly become the No. 2 bestselling EV manufacturer in the U.S., but a distant second behind Tesla," he said. "With so many EV models coming to market, and EVs having only accounted for 5% of all U.S. new vehicle sales last year, we think the risk of market oversaturation is very high and Tesla’s price cuts will effectively crush the sales prospects of many of the new EV models."
Tesla's price cuts, announced in mid-January, ranged from 6.4% to 20%, depending on the model. The price of the Model Y, an SUV comparable to the Mach-E, dropped from $65,990 to $52,990, while Tesla's least expensive offering, the Model 3, went from $46,990 to $43,990. The EV market leader's priciest model, the Model X Plaid, went from $138,990 to $119,990.
General Motors Co. indicated it's sticking with its current pricing on the GMC Hummer EV pickup and SUV after increasing them last year by $6,250.
GMC has 90,000 Hummer reservations between the pickup and SUV. Fulfilling those will take this year and well into next year, Duncan Aldred, global vice president of GMC and Buick, told media at a GMC business update event Monday where it announced the start of Hummer EV SUV production last week.
GMC, GM’s premium brand, will have lower-priced trucks with a $50,000 GMC Sierra EV coming in model year 2025. The first edition of the 2024 Sierra EV will come in the premium Denali trim with a price tag of $107,000, not far from the Chevrolet Silverado EV RST’s price of $105,000. An AT4 trim and Elevation trim will arrive in the 2025 model year, with the Elevation starting around $50,000.
“Clearly in terms of vehicles that we have announced, we're going to be very competitive,” Aldred said of pricing.
Still, Wedbush's Ives expects to see price cuts from other brands follow. “The shot across the bow is Tesla’s price cuts," he said, "and now Detroit’s going to hit back.”
