CEO Elon Musk said this week that Tesla may be able to lower prices of its cars if inflation falls enough.
Musk replied to a Tweet on Friday about pandemic and supply chain influences on Tesla car prices to a follower named Jaehwan Cho.
“If inflation calms down, we can lower prices for cars,” Musk said.
If inflation calms down, we can lower prices for cars
— Elon Musk (@elonmusk) July 15, 2022
Tesla Prices Rise in Relation to Soaring Raw Materials’ Costs
Tesla has raised car prices a number of times in the past few months by a few thousand dollars as costs of raw materials — aluminum, lithium, etc. — have surged and as automakers have struggled to source chips and other supplies due to industry-wide shortages.
Musk tweeted in March that Tesla and his other company, SpaceX, were both “seeing significant recent inflation pressure in raw materials & logistics.” Musk warned in recent weeks that the the risk of recession was real.
Tesla then increased the prices of all of its car models in the US and China in March. The company again hiked prices across its models as recently as June when it increased the cost of its long-range Model Y from $62,990 to $65,990.
Musk said in June ahead of the second price rise that he had a “super bad feeling” about the economy and would need to cut 10% of jobs at Tesla.
It’s Not Just Tesla
In 2010, around 20,000 EVs were on the road. There were over 7 million vehicles in 2020, and 250 million are projected to exist in 2030, which is a 43% CAGR projection.
In the meantime, automakers are scrambling to balance out commodities and logistics costs around the world. The average price for a new electric car has surged 22% in the past year as automakers like Tesla, GM, and Ford have attempted to recoup commodity and logistics costs.
The ACEA reports that, in June 2022, passenger car registrations continued their downward trend in the European Union (-15.4%) as supply chain issues continued to limit vehicle output. With 886,510 units registered, this is the lowest month of June on record in terms of volume since 1996. All 4 major EU markets contributed to the fall. Germany posted the strongest decline (-18.1%), followed by Italy (-15.0%) and France (-14.2%). Spain, on the other hand, saw a more modest decline (-7.8%).
Over the first half of 2022, new car registrations in the EU shrank by 14.0% compared to one year earlier, totaling around 4.6 million units. All of the region’s major markets recorded double digit drops: Italy (-22.7%), France (-16.3%), Germany (-11.0%) and Spain (-10.7%).
Last year, ACEA director general Eric-Mark Huitema made a public call for EU officials to boost domestic chip manufacturing and reduce Europe’s reliance on foreign suppliers, but some supply shortages will likely last for some time yet.
Fortune reports that production of wire harnesses — the electrical components that run through vehicles and relay information and power — has been crippled by the war in Ukraine, which accounts for 7% of all wire harness exports to the EU. The shortage has led some European automakers, such as Czech manufacturer Skoda, to start producing harnesses in-house.
But there is hope. Several automakers, including Mercedes-Benz and BMW, began seeing supply and production normalizing last month, according to Bloomberg.
Why Transitions Necessarily Involve Constraints
Renewable energy technologies are experiencing exponential growth rates. However, these technologies rely on materials, and it is not a given that these supply chains can keep up with exponential growth. The timeline of a transition to any new technology might be viewed through the lens of constraints, or a series of obstacles that temporarily prevent the new technology from displacing the old. Indeed, the concept of unconstrained exponential growth needs to be examined more closely in relation to constraints, as obstacles to innovation aren’t always technological but also economic and social factors.
Constraints on the exponential expansion of renewable energy technologies stem from the basic fact that the technologies that make up the energy transition are based on physical stuff: raw materials and intermediate products, associated process chemicals, the entire associated supply chains, among others. Each their own dynamics.
Often, these are critical materials, and a disruption could have a debilitating ripple effect on the wider economy.
- In 2020, the European Commission launched the European Raw Materials Alliance with the stated goal to “build resilience and strategic autonomy for Europe,” starting with rare-earth metals and battery materials.
- Soon after, US President Donald Trump signed an executive order that declared a national emergency because the “nation’s undue reliance on critical minerals, in processed or unprocessed form, from foreign adversaries constitutes an unusual and extraordinary threat, which has its source in substantial part outside the United States, to the national security, foreign policy, and economy of the United States.”
Raw material costs for an EV totaled $8,255 per vehicle as of May, 2022. That’s up 144% from $3,381 per vehicle in March 2020. Despite the increase in prices, demand for EVs remains strong, and the cost of production of batteries for EVs has dropped over the past decade.
Inflation Hammers Down in US & around the World
The Bureau of Labor Statistics reported a higher-than-expected inflation rate this week, with the consumer price index rising 9.1% from a year ago. US consumer prices jumped 9.1% to a nearly 41-year high in June, as gasoline and food costs remained elevated. The surge spells tough times for companies that are now looking to cut costs and alter their hiring plans.
The inflation situation in the EU is barely better, with the latest forecasts putting annual inflation at 8.6%.
Kiplinger says the inflation rate is likely to stay close to 9% the rest of the year, then decline gradually after that, ending 2023 at about 3%.
Despite the current economic situation, and a “tough quarter” for Tesla according to Elon Musk, RBC Capital’s Joseph Spak upgraded the company’s stock in June, citing “favorable” positioning. The analyst posited that Tesla is set up well for both the short- and long-term markets, largely due to its early focus on vertical integration.
Don't want to miss a cleantech story? Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!
Have a tip for CleanTechnica, want to advertise, or want to suggest a guest for our CleanTech Talk podcast? Contact us here.