How to lower battery-electric vehicle list prices and protect residual values
17 May 2023
Battery-electric vehicles (BEVs) are making the transition from early adopters to the mass market. This means manufacturers need to consider pricing, while also ensuring residual values (RVs) are protected.
Dr Christof Engelskirchen, chief economist at Autovista Group and Viktor Irle, sales director at EV-volumes.com, examine the latest market developments with Autovista24 editor Tom Geggus. The trio discuss Tesla’s pricing tactics, wider industry trends and used-car market implications.
This year began with Tesla confirming it would be lowering its list prices. Since then, the BEV builder has doubled down on plans to prioritise the mass market over profit. In its first-quarter financial figures, the carmaker confirmed it aims to leverage its position as a ‘cost leader’.
‘Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate. We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale,’ Tesla stated.
The manufacturer recently confirmed it would increase discounts for business customers in Germany. Fleet buyers in the country will be able to access an additional discount of €2,250 for purchases of Model 3 and Model Y vehicles until August, Bloomberg reported.
Irle commented that the best way to understand Tesla’s strategy is to look at its overall goal. ‘The mission of the company is to accelerate the transition to renewable energy. They do not do that by having a 25% profit margin on all the cars they sell. They do that by adding volume to the market,’ he said.
Lower list prices could be a way of tackling slowing demand at the previous price point, or an ageing model portfolio. Higher BEV prices and fresh competition from new Asian brands are also increasing pressure on prices.
Options for adaptations
But what is the best way to change model prices? Engelskirchen explained that there are a number of options for carmakers looking to sell more units. Companies can offer:
- Discounts on vehicle purchase prices
- Additional equipment at maintained list prices
- Special model versions with better cross performance
- Financing and leasing offers
- Adjusted list prices.
Each one of these options can have a different effect on RVs, and list price changes are already altering outlooks. ‘So what we are forecasting in terms of residual values is a bit of a downward adjustment this year compared to last year, across pretty much all segments and powertrain types,’ Engelskirchen said.
BEVs are projected to undergo a slightly bigger adjustment, but with supply shortages still benefitting residual values, nothing looks to be falling off a cliff.