How Tesla is managing as inflation hits the auto industry

Posted on July 01, 2022 by Zachary Visconti

As inflationary pressure has hit raw materials over the past few months, the auto industry has struggled to keep investors and consumers both happy. Electric vehicle maker Tesla hasn’t been immune to the effects of inflation either, and how it’s faring against other automakers is still yet to be determined. 

Above: An electric car symbol painted on the ground. Photo: Michael Marais

The U.S. consumer price index for new cars has risen by around 15 percent since 2021 began, and economists think outright sticker prices for new cars are up even more with new trims, driver-assistance systems and other upgrades, according to Barron’s. Car prices for Tesla are up around 30 percent for many of Tesla’s models and trims, weeks after CEO Elon Musk said the automaker has had a “tough quarter.”

To put it into perspective, the average brand new car that’s $40,000 right now would have cost just $32,000 a year ago. Tesla’s Model 3 has risen in price from about $37,000 to $47,000 since the beginning of 2021, marking a 27 percent increase. The Model Y has increased around 32 percent to $66,000, while Model S and X prices are up by around 30 percent with price increases of about $25,000 and $31,000, respectively.

While some investors seem concerned that higher car prices could kill demand for new vehicles, Tesla currently has a backlog that runs for several months, as can be seen on the automaker’s online order configurators. Still, it hasn’t stopped investors from dropping off in droves. Tesla’s stock is down about 40 percent, while General Motors (GM) and Ford are both trading down by around 46 percent.

Above: Average new auto prices remain elevated. (YouTube: CNBC)

Automakers aren’t alone in the suffering, either. Shares of auto parts suppliers Magna International and Aptiv have dropped off by around 32 and 48 percent, respectively. And despite an economic dropoff facing many markets, few have felt the effects so quickly and so firmly as the auto industry.

Total new car sales in May represented annual estimates of under 13 million units, a level which RBC analyst Joseph Spak described as “recessionary.” That does seem to corroborate investor concerns of lowered demand, though Tesla and other automakers are still functioning in a new market, and electric vehicles are here to stay. Still, some investors may find this to be a great time to buy into certain stocks at low premiums, and many expect that Tesla’s stock could have already reached its new bottom.

Either way, it’s worth noting how much more Tesla does in 2022 than simply making EVs. While it is the world’s largest maker of EVs by a few different metrics, and while it is facing struggles with inflation alongside the rest of the auto market, Tesla still has other avenues to pursue.

From the development of the Optimus Robot, the potential for future Robo-taxis through its Full-Self Driving system, to its solar energy and battery storage, it’s safe to say that Tesla is in it for the long run, and there’s a case to be made for how it could come out of all of this even further on top of the EV industry.

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Source: Barron’s

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