Invoking economic unpredictability and highlighting concerns about a slowdown in demand, Tesla (TSLA.O) joined General Motors (GM.N) and Ford (F.N.) in being cautious about increasing electric vehicle (E.V.) manufacturing capacity on Wednesday.
Tesla CEO Elon Musk said he would wait for economic stability before ceasing the company’s planned production in Mexico. He was concerned that increasing borrowing rates would make it difficult for potential buyers to finance its automobiles despite significant price reductions.
In a post-earnings call, Musk also discussed the “paycheck-to-paycheck” challenges American workers face. “People hesitate to buy a new car if there’s uncertainty in the economy,” Musk remarked. “I don’t want to be going into top speed into uncertainty.”
Following alarms from other automakers and E.V. startups, Musk made his views. It caused shares of Tesla and other E.V. manufacturers to drop 7% in premarket trading on Thursday.
The manufacture of the electric pickup trucks Chevrolet Silverado and GMC Sierra at a factory in Michigan would be delayed by a year, according to G.M., which cited a stagnant E.V. market.
Ford, a rival company in Detroit, announced last week that it will temporarily slash one of the three shifts at the factory where its electric F-150 Lightning pickup vehicle is made. The company scaled down its E.V. ramp-up in July and shifted investment to hybrids and commercial cars.
E.V. startups Rivian (RIVN.O) and Lucid (LCID.O) also experienced declines in premarket activity on Thursday, each falling more than 2%.
Lucid’s report on Tuesday raised concerns about demand for its Air luxury vehicle, showing an almost 30% decline in third-quarter production and only a minor increase in deliveries despite significant reductions.
Rivian, a manufacturer of electric sport utility vehicles and pickup trucks, also let investors down this month by delaying an increase in its full-year production target despite better-than-anticipated third-quarter results.
According to Tom Narayan, a global auto analyst at RBC Capital Markets, E.V. (demand) may be slowing down shortly; the account has more to do with pricing and affordability than a rejection of E.V.s.”
Narayan predicted that when E.V. prices decline and more affordable models become available, a temporary “dip” will pass.
The results of the upcoming quarters will determine how much money automakers invest in E.V.s. Concerns about a decrease in demand have been growing as businesses struggle with supply chain issues that have ruined production schedules. In July, Reuters reported that the U.S. market was not expanding quickly enough to prevent the accumulation of unsold E.V.s at certain car dealerships.
Market leader Tesla has been the first and most active in reducing prices, compelling others to follow suit, and pinching margins to prevent demand from dropping. Tesla has the highest profit margins in the industry. Musk, however, claimed that in certain cases, the price savings were nearly fully negated by higher financing costs due to rising interest rates intended to combat persistently high inflation, making buyers leery of switching away from gas-guzzling automobiles.
“If borrowing rates stay high, it will be more difficult for anyone to purchase a car. They cannot afford it, Musk said, adding that if loan rates fall, he will “accelerate” the growth of the Mexico facility.
According to current market projections, that won’t happen in the United States until June 2024. Still, recent strong economic indicators indicate that the central bank may decide to keep interest rates higher for longer.
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