Tesla accelerates in the battle with gas cars

Tesla CEO Elon Musk is shifting focus back to his previous goal of growing as quickly as possible, despite a likely decline in profits this year.

Going head-to-head with Tesla is something traditional automakers still avoid in the US. Tesla is reducing the price of electric cars to grow quickly, while gasoline cars are still profitable. However, analysts say that both will not be able to grow together forever. It's only a matter of time.

Last weekend, Tesla announced it sold more than 466,000 vehicles in the second quarter. This is a record , up to 24,000 vehicles higher than analysts' forecast in the FactSet survey. Shares of this company rose nearly 7% at the beginning of the week and moved sideways for the past few sessions, showing that investors think Elon Musk 's bearish strategy earlier this year has worked.

Behind that record number, however, is the not-so-optimistic reality: Tesla's output has surpassed vehicle sales for five consecutive quarters. This means their inventory continues to grow even though sales have improved. This forced Tesla to find more ways to stimulate demand. For example, last month, Model 3 cars ordered in the second quarter will receive 3 months of free charging.

Robots are assembled in a Tesla factory in California (USA) in June 2022. Photo: Reuters

The stimulus could cause Tesla's profit margin to continue to decline in the second half of this year. Second quarter profit margin will be announced later this month.

Tesla has been highly profitable during the pandemic. But this year, Musk has shifted focus to the company's original goal of growing as quickly as possible, despite a possible drop in profits this year.

This is not something that every investor is in favor of. Still, Tesla's stock price has more than doubled since the start of the year. Tesla shareholders are also notoriously less concerned with short-term profits.

The stock's rise this year reflects a bounce back after a period of decline, as well as investor interest in growth stocks. But whatever the reason, Tesla's recent rally has given Musk the green light to continue his strategy of low prices and rapid growth.

This is a challenge for automakers that want to compete in the US electric vehicle market - where Tesla dominated with a market share of more than 60% last year. Other firms can't set prices too far apart from Tesla, even though their production costs are much higher. The most visible victim is Ford's Mustang Mach-E. Ford's electric vehicle segment lost $700 million in the first quarter alone.

However, the car market in general has not been affected much. The selling price of petrol cars remained high even though production recovered after the chip shortage period. Data firm JD Power late last month said that on average, the price of new cars sold in the US in June was nearly $ 46,000, equivalent to the same period last year.

Car sales in the US are also recovering stronger than expected. Cox Automotive, another data firm, last week raised its forecast for U.S. vehicle sales this year to 15 million units, up 8% from last year.

Tesla's electric car price war has not yet spread, because it is only a niche market in the US, accounting for 7% of sales last year. Detroit - America's car capital - is still standing because it can produce large vehicles that are more difficult to electrify. Ford recently raised prices with the F-150 Lightning electric pickup truck, while lowering the price of the Mustang Mach-E, which competes directly with Tesla's Model Y.

But in China - the electric vehicle market is more saturated than the US, with gasoline-electric hybrids contributing 27% of sales in 2022, the picture is very different. The fact that Tesla continuously lowered car prices has sparked a fierce battle to keep market share here.

NIO - the Chinese electric car company known as the "Tesla killer" - has fallen victim to this price war . NIO's sales have plummeted over the past few months, forcing it to cut prices, reduce investments and spend more cash.

It will take a while for the US market to saturate. Electric vehicles are also having a favorable opportunity to become more popular. The price gap with petrol cars is narrowing. The charging system - which has made many users hesitate - is also gradually unifying, as companies use Tesla charging stations. Many new electric car models are coming, including from traditional car manufacturers.

To date, the impact Tesla has had on the auto industry as a whole has been largely in terms of capital allocation. Car manufacturers have poured tens of billions of dollars into new products and production. Electric cars eroding gasoline car profits has not happened yet, but the prospect is very close.