How lowering prices affects automotive electrification, brand image and residual values
15 February 2023
When Tesla announced it would lower the list price of its models across the world, it caused a significant industry reaction. Autovista24 deputy editor Tom Geggus examines the potential effects with Dr Christof Engelskirchen, chief economist at Autovista Group, and Andreas Geilenbruegge, head of valuations and insights at Schwacke (part of Autovista Group).
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Show notes
Tesla turns up heat on rivals with global price cuts
Tesla to raise Shanghai output after price cuts stoke demand – memo
Ford to significantly increase production of Mustang Mach-E in 2023, reduces prices across the board
VW will not match Tesla price cuts for its EVs, CEO Blume says
Is now the time for cautious economic optimism?
Will phase-out of incentives threaten EV uptake in Germany?
How fast will Asian carmakers become part of Europe’s automotive landscape?
Synopsis
There are numerous reasons why manufacturers might lower the prices of battery-electric vehicles (BEVs). Firstly, their market share continues to rise. In 2022, registrations of BEVs closed in on those of diesel-powered models, with respective European market shares of 14% and 14.5%.
This is thanks in large part to early adopters investing in the technology. However, a tipping point will surely be reached as early adopters are all bought in, and the mass market needs to be satisfied. Alongside rising interest rates, ensuring BEVs appeal to a wider range of consumers with lower price tags makes sense.
Many media outlets signalled the beginning of a price war following Tesla’s announcement. Not long after, Ford lowered the price of the Mustang Mach-E in the US. However, not all carmakers were on board with this. Volkswagen (VW) Group’s CEO Oliver Blume refused to be drawn into battle.
Meanwhile, new brands from Asia are entering European markets, offering up affordable vehicles with advanced technology. This could also lead established brands to adjust list prices. However, these companies will also need to consider their brand image when lowering prices. If carmakers want to shift from the premium segment to the mass-market via new pricing strategies, the public perception will change in parallel.
Adjusted list prices will not only affect new vehicles though, as used models will also see a knock-on effect. Directly comparable models will see the biggest change in absolute residual values (RVs). This could include very-young used models, demonstrators, or rental vehicles. This impact will wash through to older models, just at a slower rate. ‘It is still the better strategy in terms of changing transaction price than offering high discounts,’ Engelskirchen explained.
