Tesla’s price cuts are putting extra pressure on electric car startups

Electric vehicles are becoming more popular with consumers, but even Tesla’s lineup took several years to become profitable. With the automaker’s most recent round of price cuts, EV startups that are struggling to make money may be put in tough positions, some of the industry’s analysts say.

Tesla’s price cuts have effectively waged a “price war,” making it even harder for money-losing EV startups such as Rivian and Lucid to carve out their own market share, according to a report from Reuters. The price cuts marked Tesla’s vehicles down by as much as 20 percent, which analysts think could draw new consumers away from more expensive models.

As a result, analysts and investors say that other automakers will need to respond by either lowering their own prices, or they may be at risk of getting left behind. Tesla remains the dominant market share leader in the emerging EV industry, delivering over 1.3 million vehicles in 2022 — while other, smaller automakers struggle to produce nearly as many vehicles.

Tesla’s price cuts will "strengthen their ... competitive advantage over other automakers," CFRA Research analyst Garrett Nelson said.

Above: A look at the recent price cuts on electric vehicles from Tesla and Ford (YouTube: Wall Street Journal)

Neither Rivian or Lucid have turned a profit yet, delivering just over 24,000 vehicles last year combined. Cost of goods on Rivian’s vehicles was roughly 2.7 times its revenue in the fourth quarter, and Lucid’s was roughly 2.5 times its sales.

Still, both companies have managed to raise funding enough for a sizable production runway over the next year or so. Even smaller automakers such as Faraday Future and British EV startup Arrival were already unsure if operations would be funded through 2023 before Tesla’s recent round of price cuts.

Wedbush Securities analyst Daniel Ives likened the situation to a “Game of Thrones” battle, highlighting how close some of these companies may be to being wiped out.

"It's a 'Game of Thrones' battle for EV startups and they face some dire options over the next 12 to 18 months if they do not succeed in their financial targets," Ives said. "We would expect some ... losers that face the prospect of consolidation or possibly worse on the horizon."

Lucid is headed by former Tesla executive Peter Rawlinson, and the company has yet to announce mass-market rivals to the Model 3 or Model Y. The company is instead targeting a luxury market, with its most affordable vehicles starting at $107,400. The Tesla Model 3 and Y currently start at roughly $44,000 and $53,000, respectively.

Tesla’s price cuts could push some of the market’s smaller competitors out of the ring in the coming months, even as the company remains the market share leader by a huge margin. Many automakers are set to announce their fourth-quarter earnings in the coming weeks, which will also offer more insight as to what 2023 could look like in the EV space.

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