CEO Elon Musk said this week that Tesla may be able to lower the prices of its cars if inflation falls enough.
Musk responded Friday to a Tweet about pandemic and supply chain influences on Tesla car prices to a follower named Jaehwan Cho.
“If inflation calms down, we can lower car prices,” Musk said.
If inflation falls, we can lower car prices
— Elon Musk (@elonmusk) July 15, 2022
Tesla prices rise amid rising raw material costs
Tesla has raised car prices by a few thousand dollars several times in recent months as the cost of raw materials — aluminum, lithium, etc. — has risen and automakers struggle to buy chips and other supplies due to industry shortages.
Musk tweeted in March that Tesla and his other company, SpaceX, have both seen “significant recent inflationary pressures in commodities and logistics.” Musk warned in recent weeks that the risk of a recession was real.
Tesla then increased the prices of all its car models in the US and China in March. The company recently raised prices for its models again in June when it increased the cost of its long-haul Model Y from $62,990 to $65,990.
Musk said in June ahead of the second price hike he had a “super bad feeling” about the… economy and would have to cut 10% of the jobs at Tesla.
It’s not just Tesla
In 2010, there were about 20,000 EVs on the road. In 2020 there were more than 7 million vehicles and by 2030 there are expected to be 250 million 43% CAGR projection.
In the meantime, automakers are struggling to balance the cost of raw materials and logistics around the world. The average price for a new electric car has risen 22% in the past year as automakers such as Tesla, GM and Ford have tried to recoup costs for raw materials and logistics.
The WHICH reports that in June 2022, passenger car registration in the European Union continued its downward trend (-15.4%) as supply chain problems continued to limit vehicle production. With 886,510 units registered, this is the lowest month of June in terms of volume since 1996. All 4 major EU markets contributed to the decline. Germany recorded the strongest decline (-18.1%), followed by Italy (-15.0%) and France (-14.2%). Spain, on the other hand, experienced a more modest decline (-7.8%).
In the first half of 2022, the number of new car registrations in the EU shrank by 14.0% compared to a year earlier, to a total of around 4.6 million units. All major markets in the region recorded double-digit declines: Italy (-22.7%), France (-16.3%), Germany (-11.0%) and Spain (-10.7%).
Last year, ACEA Director General Eric-Mark Huitema made a public appeal to EU officials to boost domestic chip production and reduce Europe’s reliance on foreign suppliers, but some supply shortages are likely to persist for some time to come.
Fortune reports that the production of wire harnesses – the electrical components that run through vehicles and transmit information and power – has been crippled by the war in Ukraine, which accounts for 7% of all wire harness exports to the EU. The shortage has led some European carmakers, such as Czech manufacturer Skoda, to start producing harnesses in-house.
But there is hope. According to several automakers, including Mercedes-Benz and BMW, supply and production started to normalize last month Bloomberg.
Why transitions necessarily involve limitations
Renewable energy technologies are growing exponentially. However, these technologies depend on materials and it is not a given that these supply chains can keep up with exponential growth. The timeline of a transition to a new technology can be viewed through the lens of limits, or a series of obstacles that temporarily prevent the new technology from replacing the old. Indeed, the concept of unlimited exponential growth needs to be further explored in relation to constraints, as obstacles to innovation are not always technological, but also economic and social factors.
Limitations on the exponential expansion of renewable energy technologies stem from the fundamental fact that the technologies that make up the energy transition are based on physical things: raw materials and intermediates, associated process chemicals, the entire associated supply chains, among others. Each has its own dynamic.
Often these are critical materialsand a disruption could have a debilitating ripple effect on the broader economy.
- In 2020, the European Commission launched the European Commodity Alliance with the stated goal of “building resilience and strategic autonomy for Europe”, starting with rare earths and battery materials.
- Shortly after, US President Donald Trump signed a executive order declaring a national emergency because the “nation’s over-reliance on critical minerals, in processed or unprocessed form, from foreign adversaries poses an unusual and extraordinary threat, originating largely outside the United States, to national security, foreign policy, and the economy of the United States.”
Raw material costs for an EV totaled $8,255 per vehicle in May 2022. That’s more than 144% from $3,381 per vehicle in March 2020. Despite the price increases, demand for EVs remains strong, and the production costs of batteries for EVs has declined over the past decade.
Inflation is slowing in the US and the rest of the world
The Bureau of Labor Statistics reported higher-than-expected inflation this week, with the consumer price index rising 9.1% from a year ago. US consumer prices rose 9.1% in June to a 41-year high as gasoline and food costs remained high. The wave heralds difficult times for companies now looking to cut costs and change their workforce plans.
The inflation situation in the EU is hardly better: according to the latest projections, annual inflation is 8.6%.
Kiplinger says inflation is likely to remain close to 9% for the rest of the year and then gradually decline, until 2023 at around 3%.
Despite the current economic situation and a “difficult quarter” for Tesla according to Elon Musk, RBC Capital’s Joseph Spak the company’s shares upgraded in June, citing a “favourable” positioning. The analyst stated that Tesla is well set up for both the short- and long-term markets, largely because of its early focus on vertical integration.
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