Tesla changes track to challenge the likes of Ford after abandoning Mercedes battle

Since its Model S launch, Tesla had been picking off customers largely from luxury players led by BMW and Mercedes-Benz

A Tesla dealership in Illinois. In the US, Tesla has cut the starting price of its top-selling Model Y sport utility vehicle by 29 per cent in three months. AFP

Tesla has entered a new era: one in which Elon Musk keeps a different set of car executives up at night, while others rest a little easier.

In the decade since the Model S launched, Tesla has been picking off customers largely from luxury players led by BMW and Mercedes-Benz. While Mr Musk had ambitions to take on mass manufacturers with a $35,000 Model 3, he ended up charging much more — first out of necessity to keep Tesla afloat, and then because he and the broader industry were production-constrained.

Mr Musk set wheels in motion this time last year to change all that. Tesla opened two new plants, doubling its car factory footprint. With Mr Musk set on expansion and less concerned about profits, Ford and Renault bosses are now among the ones looking nervously in their rear-view mirror.

“Price wars are breaking out everywhere,” Ford chief executive Jim Farley said on Thursday at a charity event in Detroit, days after Renault said it was examining how its models are positioned. “Who’s going to blink for growth?”

Luxury-car makers won’t be totally immune to pricing pressure — Mercedes slashed the stickers on its EVs in China late last year, weeks after Tesla started cutting. But German executives have been adamant about their unwillingness to follow Mr Musk in compromising brand value for volume.

If anything, Mercedes-Benz Group chief executive Ola Kallenius wants to move further upmarket, as this strategy has been paying dividends. The manufacturer said late on Thursday that profits were stronger than expected in the first quarter, driven by resilient pricing.

• 

  Tesla chief executive Elon Musk speaks during the opening day of the Tesla Gigafactory in Gruenheide, Germany. EPA

• 

  Musk speaks next to German Chancellor Olaf Scholz and the prime minister of Brandenburg state, Dietmar Woidke, during the opening ceremony. AFP

• 

  The Tesla chief, right, was cheered as he oversaw the handover of the car maker's first German-made cars at the Gruenheide plant. EPA

• 

  Musk described the opening as "another step in the direction of a sustainable future". EPA

• 

  Tesla is likely to launch a test version of its new "full self-driving" software in Europe, possibly next year, the chief executive said. EPA

• 

  Musk dances as he hands over the first Teslas from the new factory. Getty Images

• 

  Musk said battery production will be a "challenge" next year and a "limiting factor" in the coming years. Reuters

• 

  Tesla cars are parked at the site of the new Tesla Gigafactory in Gruenheide, Germany. Reuters

• 

  Tesla was handing over the first Model Y cars made at its €5 billion Gruenheide plant to clients on March 22, the company said. Getty Images

• 

  The new Tesla Gigafactory is the company's first European production centre. Getty Images

• 

  Newly completed Tesla Model Y electric cars parked at the site near Gruenheide. Getty Images

• 

  The new factory is the largest investment in a German car factory in recent history. Getty Images

• 

  A road sign reading 'water protection area' next to the Tesla logo at the site of the Tesla factory. EPA

• 

  A road sign reading 'Tesla Street' at the new plant. EPA

• 

  A building under construction at the Tesla factory. EPA

• 

  At full capacity, the factory will produce 500,000 cars annually. EPA

• 

  Tesla plans to hire 12,000 workers at the plant. Bloomberg

“Tesla is not only sacrificing its EV margins to achieve its volume ambitions. To some extent, it is also placing the goodwill and brand equity that it has built up on the altar too,” Daniel Roeska, Bernstein’s European auto analyst, wrote in a report on Thursday.

“This is most important in the premium end of the market, where brand perception and social status are the crux of sales.”

Mr Musk’s markdowns have been dramatic and swift. In the US, Tesla has hacked the starting price of its top-selling Model Y sport utility vehicle by 29 per cent in three months.

That’s an issue for Ford, which recently discounted its Mustang Mach-E SUV by about $4,500 on average to stay competitive. While the car maker pulled ahead of General Motors last year as the No 2 seller of EVs in the US, it remains well behind Tesla.

With Ford lacking the economies of scale Mr Musk has built and investing heavily to catch up, the company has forecast a $3 billion loss for its electric vehicle business this year.

• 

  The demand for electric cars in particular has intensified because of a shortage in the supply of new cars, coupled with escalating fuel prices. AP

• 

  The Tesla Model 3 is one of the most popular used electric vehicles to buy in the UAE. Photo: EPA

• 

  There are four Tesla charging stations located at Masdar Park in Abu Dhabi. Victor Besa / The National

• 

  The Volkswagen ID6. Photo: Wikipedia

• 

  The Tesla Model X is one of the most sought after electric cars on Dubizzle. Photo: Wikimedia commons

• 

  The Volkswagen ID4 is one of the most popular electric cars for people to search for on Dubizzle. Photo: Wikipedia

Renault is planning to go a step further than Ford — not only separating its EV and combustion engine business, but planning an initial public offering for its plug-in car and software operations. The head of the Renault brand called Tesla’s price cuts a clear challenge early this week, and investors sold off the French company’s stock on Thursday despite its strong first-quarter sales.

While fielding several questions on the sustainability of the €42,000 ($46,000) tag on the electric Megane E-Tech hatchback, chief financial officer Thierry Pieton acknowledged that overall pricing may be “a little softer” in the second half. Still, he said Renault isn’t planning any drastic changes.

“There is no big incentive to go cut the prices and kill residuals and go in a spiral that some of the competition is following,” Mr Pieton said.