Tesla and Ford's EV price cuts make no sense, Bank of America says
Neither move made much sense, according to Bank of America, though Tesla still holds a near-term advantage, the bank analysts said.
"The logic appears odd to us," strategists wrote in a Tuesday note."Both TSLA and Ford are citing demand that exceeds supply, which means that cutting prices would be a direct hit to the bottom line today and unnecessarily degrades future earnings power." On one hand, Elon Musk's decision for Tesla could have been driven by easing demand or his target 50% growth rate, though BofA noted the approach was still strange.
But for Ford, in order to meet its sales volume targets and maintain profits, the legacy automaker would have to produce and sell about 33% more vehicles than anticipated due to the price cuts, Bank of America estimated. Cutting vehicle prices is a risky move if that additional capacity isn't possible. this year, revised from a prior target of 78,000. in a media briefing."We want to stay competitive in the marketplace.
Nonetheless, Bank of America said the auto industry does not always act rationally, hence the recent price cuts. Given the relative novelty and small size of the EV market, obstacles are bound to emerge, which makes the already-challenging business even more so.
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