Discounts of up to 50 percent
A price war is raging for electric cars
By Helmut Becker
March 3, 2024, 2:45 p.m
Listen to article
This audio version was artificially generated. More info | Send feedback
About a year ago, Tesla lowered prices for some of its most popular electric car models in China. The industry pioneer is thus starting a price war in which more and more manufacturers are taking part. This has far-reaching consequences.
An open price war has broken out in the market for electric cars. Worldwide. But not because customers are fighting over coveted battery electric cars (BEVs) that are in short supply. The opposite is the case: manufacturers and dealers are desperately trying to get new electric cars and those from the stockpile to men and women. The result: At times, prices for electric cars are “in free fall,” according to the industry journal “Automobilwoche.” What was initially a discount battle has turned into a price war. Individual manufacturers are currently openly offering discounts of up to 50 percent on individual models. How is that possible?
What all electric car manufacturers – led by Tesla with a 20 million sales dream for 2030 – thought was unthinkable last year has now happened: growth occurred in all major sales markets for battery electric cars, with the exception of China Succumb. In Germany, for example, demand for battery-powered cars has collapsed following the abrupt end of the state environmental bonus. The much-cited ramp-up of the German market for electric cars turned out to be unsustainable and largely just a flash in the pan, fueled by substantial government purchase bonuses.
Economically rational
In and of itself, it wasn’t anything exciting. Because when the state environmental bonus of 4,500 to 6,500 euros was withdrawn almost overnight in December 2023, something happened that economists with market expertise had warned about long before: that the market would collapse because electric cars were now significantly more expensive and customers would become economically disadvantaged behave rationally and stay away from electric cars.
The market experts were right: demand has actually collapsed. But what very few people expected: the prices for electric cars too. The electric car market fell into crisis mode. And the economists saw their forecasts confirmed: Instead of becoming more expensive without government bonuses, the manufacturers not only took over the loss of purchase bonuses, but also began to offer increasingly larger discounts on their electric models. While the losses per electric car were previously limited with government bonuses, they have now skyrocketed. This meant that the paradoxical situation arose for everyone without exception: the more electric cars a manufacturer sold, the greater its losses became; only for Tesla and the Chinese brand BYD did the margins shrink as exceptions.
Sales slump at the start of the year
Although a statistical monthly value does not constitute a trend, the extent of changes still allows certain conclusions to be drawn. In January 2024, only 22,474 BEVs and 14,394 plug-in hybrids (PHEVs) were newly registered in Germany, despite the high backlog of orders from the previous year. Compared to the previous month of December 2023, BEV registrations fell sharply by 59 percent and those of PHEVs by 20 percent. The share of purely electric cars (BEVs) in new registrations fell abruptly to 10.5 percent in January 2024; The annual average for 2023 was 18.4 percent, much applauded by supporters of electromobility.
This BEV market collapse occurred even though the manufacturers unanimously not only completely replaced the state environmental bonus with their own discounts, but also drastically reduced their sales prices. This in turn had a very negative impact on the purchases of fleet operators, who suddenly saw the residual values of their electric cars, even though they had been purchased at high discounts in previous years, drift into the red.
A vicious circle: Up until now, 75 percent or more of electric car sales in Germany had been made by commercial customers, not private ones. What’s more: six-figure purchase orders for purely electric cars were canceled, drastically reduced in size or redirected to even cheaper Chinese manufacturers such as Geely.
Exactly as described in economic theory, the discount battle mutated into a price war in which every manufacturer tries to defend its market share and stop the declining utilization of its capacities. So far without success, but with increasing losses – and already numerous bankruptcies among Chinese manufacturers. Only world market leader BYD, due to its lean cost structure, and Tesla, due to its high initial margin, are showing robustness. There isn’t much left of the 50 percent margin that was once rumored at Tesla. But the electric car pioneer is still operating in the black.
Tesla is leading the way, VW is following suit
Tesla boss Elon Musk triggered the price war – initially in China, where the growth of the electric car market began to weaken in spring 2023 and Musk saw his ambitious annual targets of two million BEVs at risk. To promote sales, Tesla began gradually reducing the prices of the most common models, initially by $3,000 and later by $10,000. This also applies to the US home market and Europe. What was initially a local Chinese discount battle quickly turned into a global price war for electric cars that continues to this day. Tesla has lost its reputation as a premium brand due to its aggressive pricing policy.
German manufacturers are also in the middle of the discount hustle and bustle. All premium manufacturers usually offer hidden, high discounts. VW announced significant temporary discounts after the state environmental bonus was abolished, although CEO Oliver Blume had emphasized in the spring that he did not want to enter into a price war with Tesla under any circumstances. Production cuts, idle production lines, the elimination of jobs for temporary workers and permanent shifts have forced a change of heart. VW has reduced the prices for its ID models by almost 8,000 euros in some cases.
If you ask about the reasons for this unusual price war, there are two: On the one hand, it shows that the demand for electric cars everywhere had previously been strongly artificially boosted by government purchase bonuses. On average, electric cars are around a third more expensive than combustion engines because of the expensive batteries. The lack of public charging infrastructure and open questions regarding loss of time value also deterred potential buyers.
On the other hand, in contrast to the demand for electric cars, the supply has increased significantly. Battery factories and new plants for building electric cars have been springing up around the world and in almost all Western manufacturers. The result is excess capacity. And the gap between supply and demand threatens to become even larger in the western electric car markets in the future. A vicious circle, including bankruptcies.