Tesla, alongside GM and Ford, has expressed caution regarding the expansion of electric vehicle (EV) production capacity due to economic uncertainties, reflecting concerns of weakening demand.
Tesla CEO Elon Musk voiced apprehensions about increased borrowing costs potentially rendering its vehicles unaffordable for prospective buyers, despite significant price reductions. He conveyed that he would await greater economic clarity before proceeding with the development of its planned factory in Mexico.
Musk’s statements, which caused Tesla’s shares to dip over 4% in after-market trading, followed warnings from other automakers and EV startups. GM recently announced a one-year delay in the production of Chevrolet Silverado and GMC Sierra electric pickup trucks in Michigan due to stagnating EV demand.
Ford decided to temporarily cut one of three shifts at its factory for the electric F-150 Lightning pickup truck. In July, Ford slowed down its EV expansion, reallocating investments towards commercial vehicles and hybrids. EV startup Lucid reported a nearly 30% decrease in third-quarter production and only slight delivery growth, even with substantial discounts, raising concerns about demand for its luxury sedan, Air.
Rivian, backed by Amazon, which manufactures electric pickup trucks and SUVs, refrained from raising its full-year production forecast this month despite better-than-expected third-quarter results, disappointing investors. Tom Narayan, a global autos analyst at RBC Capital Markets, commented that this downturn is more related to pricing and affordability than a rejection of EVs. He anticipates that this is a transient phase that will improve as EV prices decrease and more affordable variants become available.
Automakers have substantial EV-related investments at stake as they navigate supply chain constraints that have disrupted production schedules. To sustain demand, Tesla, with its strong profit margins, has taken the lead in reducing prices. Musk explained that higher financing costs linked to rising interest rates are nearly offsetting price reductions, dissuading consumers from transitioning away from gasoline-powered vehicles.
Tesla intends to accelerate the expansion of its Mexican factory if interest rates decrease. However, current market estimates don’t predict a decrease in the United States until June 2024, given recent robust economic data suggesting the central bank may maintain higher interest rates for an extended period.