Under the title “Save the Margin Soldier”, the editorial of the August 24 Watt Else newsletter focused on the race for high margins among car manufacturers. Rising margins often mean that prices have followed the same trend, which is not going to help make the electric car more affordable.
European manufacturers have been repeating it for several months, they refuse to enter the price war initiated by Tesla. They are ready to sell less, but to sell better. Which means higher prices for the customer. However, the balance only works by remaining a minimum of competition, unless you are in the luxury segment. So, to those who hope for a drop in the price of electric cars (excluding Tesla) before the end of the year: it smells like fir!
Tesla is no longer the margin champion
Margin or volume? That is the question. Many automotive groups have chosen to bet on high and healthy margins after the covid episode. The financial results for the half-year confirm the trend. If Ferrari still maintains a good lead over all the others with 29.6%, Porsche, Stellantis, BMW, Mercedes or Toyota are again ahead of Tesla, with comfortable margins two digits.
Tesla is no longer the leader in this area. Its higher margins than incumbent manufacturers have been partly sacrificed to run factories at a higher rate by stimulating consumer demand. Mission (partially) accomplished and appreciated by end customers. Except that this decision makes investors cringe and that’s never good.
If this strategy of high margins will not really make European manufacturers popular, it is not their priority at the moment. The pitfalls are increasing on the road to the electrification of their range. The semiconductor crisis is not yet over when inflation and high interest rates come to play spoilsports.
The groups all fear a slowdown in demand over the next few months. It might look like a snake biting its own tail. How to stimulate the purchase of customers in a period of financial concerns without playing on the price lever? The real novelties will not arrive before mid-2024, from now on. Without a price boost, the appeal of existing models could stagnate.
Prices in summary equilibrium
The worst would be if the prices of electric cars continue to follow the upward slope they have taken since 2022. The threat from Tesla and Chinese manufacturers, who are grabbing market share in the electric car, will certainly play a regulatory role appreciated by European customers.
A recent statement from Volkswagen should also be reassuring. The prices of some thermal models will indeed increase due to inflation, but not those of electric cars. The brand must absolutely remain competitive, which is not necessarily easy with Tesla to cut cruppers for it.
The end of the year will certainly be more hectic than it seems. For the moment, one can have the impression that all the builders look at each other like earthenware dogs. But all it takes is one that moves, up or down, to shake things up. The Munich mobility fair (IAA), at the beginning of September, will perhaps give a pulse on what awaits us for the months to come.
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