The end of the EV premium? Deflation hits auto industry as Ford ups stakes in electric car price war with Tesla

After Tesla threw down the gauntlet earlier this month, Ford is now following its lead and cutting prices on the Mustang Mach-E, the third bestselling EV in the United States.
Courtesy of Ford Motor

Soaring prices for expensive new electric vehicles could finally be cooling off after months of pressure, and prospective buyers can thank Elon Musk for that. 

The chief executive of Tesla lowered the entry point for his most popular vehicles at the start of the year in order to reduce rising inventories and reverse two straight quarters of sales volumes that fell short of Wall Street’s expectations

Domestic rival Ford is now upping the stakes with its own price cuts for the Mustang Mach-E crossover, America’s third-bestselling EV.

Chief executive Jim Farley said manufacturing costs per unit would drop by ramping production to 130,000 units in 2023, an increase of two-thirds from the 78,000 built last year. The improved economies of scale, he argued, allow the company to pass the savings on to the customer. 

“At Ford we want to make EVs more accessible, so we’re increasing Mustang Mach-E production and reducing prices across the Mach-E lineup,” he posted to Twitter on Monday. 

The premium GT performance and California Route 1 versions of the crossover saw steep cuts of 8% or more. By comparison, the price of Ford’s entry rear-wheel drive and all-wheel drive versions that qualify for President Biden’s federal EV tax credits were only trimmed, now starting at $45,995 excluding items like destination fees.

In contrast to Musk, Farley extended the deal to those buyers who had placed an order for a Mustang Mach-E after Jan. 1, even if they have already taken delivery. 

When Tesla slashed its prices at the start of this month, only new customers could take advantage of the offer. Those who had rushed to lock in a special $7,500 discount on vehicles delivered in December were less fortunate

“We want our customers to know they made the right decision by choosing a Mustang Mach-E,“ said Ford’s Marin Gjaja, sales and marketing boss for the carmaker’s EV division, in a statement on Monday.

Ford’s generosity does have its limits, though: The company said nothing about cutting prices for the F-150 Lightning truck. 

That is at least in part because Tesla currently has no electric pickup that can peel customers away from Ford. Musk expects to launch the Cybertruck later this year with volume production slated for 2024. Until then, Ford only has to worry about the Rivian R1T fishing in its pond

Tough competition in the Mustang Mach-E’s segment

By comparison, the popular EV crossover segment, where the Mach-E is positioned, is far more crowded with the Hyundai Ioniq 5, the Kia EV6, and Volkswagen ID4 already competing for customers.

With just over 28,000 vehicles sold through the first nine months of last year, the Mustang Mach-E did manage to defend its third-place finish in the U.S. EV market, according to a quarterly report by Kelley Blue Book. 

Although it is exceeded by two Teslas alone, the Mustang Mach-E’s distance to second place is a chasm more than a gap: Tesla’s Model 3 sedan surpassed sales of 156,000 during the same period, while the roomier Model Y came within striking distance of the 200,000 mark. 

Now that Musk has lowered the entry point for both of his core volume cars, the pressure is on Ford and all other rivals to offer a compelling reason why a consumer should reach for their models instead of one from the industry leader. 

Red-hot demand

This month’s EV price cuts by Tesla and Ford come on the heels of red-hot demand for new cars in general and EVs in particular. 

Pandemic-related factory closures in 2020, combined with an acute shortage of automotive microchips in 2021, conspired to drive prices higher as the supply of new vehicles dried up. Finally global inflation more broadly surged last year, exacerbated by sky-high energy prices after resource-rich Russia invaded Ukraine last February.

As a result, average selling prices soared to a historic high of $49,507 in December, nearly 2%, or $927, over November levels. EVs were a noticeable exception as Tesla offered rebates toward the end of last month.

With auto loan rates hitting a new 20-year high, according to Cox Automotive, the average American needed to work longer than ever to afford the purchase of a new car.

Courtesy of Ford Motor Co.

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