Tesla uses its profits as a weapon in an EV price war

[rperez817]

This Reuters article says Tesla is now doing what Ford did in the early 20th century and Toyota did late in that century, "using production-cost advantages to fund price cuts". Analysis: Tesla uses its profits as a weapon in an EV price war | Reuters

 

Quote

Henry Ford slashed prices on his Model T in the early 20th Century as his innovative mass-production system revved up. During the 1980s and 1990s, Toyota used the cost lead provided by its lean production system to offer features at prices Detroit automakers struggled to match. Now, Toyota is rebooting its strategy under pressure from Tesla.

Growth in electric vehicle demand outpaced the overall market in the United States and globally during 2022. That emboldened automakers to push EV prices higher. Ford hiked prices for its electric F-150 pickup by 40% during 2022.

 

Edited January 28, 2023 by rperez817

[akirby]

Duh.  Tesla raised prices up to $8k per vehicle.  What else would you expect to happen?

[rperez817]

1 hour ago, akirby said:

Duh.  Tesla raised prices up to $8k per vehicle.  What else would you expect to happen?

 

All of the non-Chinese automakers shown in the chart raised vehicle prices in the same timeframe. What really separates Tesla from the rest is that they reduced production costs dramatically by applying super efficient, scalable, and agile manufacturing techniques that both the legacy automakers and the Chinese EV startups have been unable to match.

[akirby]

41 minutes ago, rperez817 said:

 

All of the non-Chinese automakers shown in the chart raised vehicle prices in the same timeframe. What really separates Tesla from the rest is that they reduced production costs dramatically by applying super efficient, scalable, and agile manufacturing techniques that both the legacy automakers and the Chinese EV startups have been unable to match.

You mean the same super efficient scalable and agile techniques they were using in 2020 when net profit was only $1495?

[rperez817]

10 hours ago, akirby said:

You mean the same super efficient scalable and agile techniques they were using in 2020 when net profit was only $1495?

 

Yes and no. At a high level, Tesla's super efficient, scalable, and agile techniques for automobile manufacturing remain as revolutionary now as they were in 2020. No other automaker has anything close. However, the specific elements of those techniques are very different now versus 2020, because the update cadence of Tesla's manufacturing processes is something like an average of 20 changes per production line per week.

 

EV market analyst Alex Vogt described Tesla's techniques and processes with this example.

According to Joe Justice, a former Tesla manager and expert in the field of ‘Agile for Hardware’ the Model S changes hardware and software 27 times a day and that translates into a change about every 3 hours. In strong contrast to Tesla, all other automakers introduce hardware changes at a firm date like July 1st to manage logistics and they try to avoid frequent changes to optimize production throughput, purchasing efficiency, and costs. The closest automaker to Tesla with hardware changes every 3 hours is Toyota with changes for fast track products that are implemented every 2.5 years or about every 9,125 days.

 

Assuming a 2-shift production Tesla is almost 14,600 times faster with new systems and parts integration compared to the fastest competitor.

[rperez817]

jpd80 made a very smart and correct observation about VW, Stellantis, and the Japanese automakers in the "Ford is scaling down VW partnership for EVs" thread.

 

On 1/23/2023 at 12:41 PM, jpd80 said:

You’re looking backwards, not forwards. VW and Stellantis are in big trouble in home market Europe and in China where up to half of their profit is derived. Their premium compact sales are being stolen by Tesla and those buyers are never coming back. Both brands are acting like zombie corporates, just going through the motions in Europe and China but have no idea how to compete with Tesla, this year will see another major shift with Tesla price reductions taking hold of even more sales.

 

The world’s love affair with Japanese carmakers seems to be over too, Honda, Nissan and Mazda suffering a huge reversal of fortune while Toyota appears just as clueless as VW and Stellantis. If we go into a serious economic downturn, I don’t think the Japanese government has enough cash reserve to keep its car industry afloat.

 

Going back to the chart from Reuters, VW's advantage in profitability among the non-Chinese automakers is likely to erode rapidly due to exactly what jpd80 mentioned: the company is "acting like zombie corporates, just going through the motions in Europe and China but have no idea how to compete with Tesla".

 

GM and Ford may actually be in the strongest position among the legacy automakers listed because despite their lower gross profitability, they both have more coherent business strategies and timelines for an all-electric future compared to VW, Toyota, and Hyundai.

Edited January 28, 2023 by rperez817

[akirby]

On 1/27/2023 at 9:12 AM, rperez817 said:

According to Joe Justice, a former Tesla manager and expert in the field of ‘Agile for Hardware’ the Model S changes hardware and software 27 times a day and that translates into a change about every 3 hours. In strong contrast to Tesla, all other automakers introduce hardware changes at a firm date like July 1st to manage logistics and they try to avoid frequent changes to optimize production throughput, purchasing efficiency, and costs. The closest automaker to Tesla with hardware changes every 3 hours is Toyota with changes for fast track products that are implemented every 2.5 years or about every 9,125 days. 

That is ridiculous and an abuse of the agile process.  It’s not possible to make 27 meaningful changes to a vehicle every day - that’s over 8000 a year. 
Even with automated testing every change is a potential error.  Sounds like they just gave the engineers carte blanche to change whatever they want whenever they want with no oversight.

 

It is a big advantage to be able to make changes rapidly and have better quality control.  But it also comes with a higher up front capital investment which can be problematic for established automakers.

 

The solution is somewhere in between with software updates once or twice a month and hardware changes a few times a year with a mix of in house and outsourced parts,

[jpd80]

56 minutes ago, akirby said:

That is ridiculous and an abuse of the agile process.  It’s not possible to make 27 meaningful changes to a vehicle every day - that’s over 8000 a year. 
Even with automated testing every change is a potential error.  Sounds like they just gave the engineers carte blanche to change whatever they want whenever they want with no oversight.

 

It is a big advantage to be able to make changes rapidly and have better quality control.  But it also comes with a higher up front capital investment which can be problematic for established automakers.

 

The solution is somewhere in between with software updates once or twice a month and hardware changes a few times a year with a mix of in house and outsourced parts,

If we look at what was said, Model S and 27 changes per day, that sounds like every model S produced is unique, perhaps that’s tolerable given the relatively low production run. I’m more interested in what was not said, no constant changes to 3 or Y? 

[akirby]

3 hours ago, jpd80 said:

If we look at what was said, Model S and 27 changes per day, that sounds like every model S produced is unique, perhaps that’s tolerable given the relatively low production run. I’m more interested in what was not said, no constant changes to 3 or Y? 

Same for Model X I think but no mention of the others.

[jpd80]

39 minutes ago, akirby said:

Same for Model X I think but no mention of the others.

Yes, all I’m saying is that there was an underlying agenda to that reporting, Tesla’s ability to make constant changes in production. I don’t think that’s a thing for the high volume 3 and Y where production hardware is more set/stable and changes to them happen far less often.

Edited January 28, 2023 by jpd80