Ford Motor Company CEO Jim Farley says Tesla’s price war strategy for electric vehicles is not a new one.
Musk’s decision to slash prices and protect volume over profit margins reminds Farley of 1913, when Henry Ford used a similar strategy to spur Model T sales. The executive told reporters last week that Musk’s move is a play right out of Henry Ford’s Model Y playbook, according to Insider.
“Go read ‘1913.’ This has all happened before,” Farley said referring to a book that looks closely at the year Ford became a mass-producer of vehicles. It’s worth noting that Henry Ford also explained the importance of price cuts for Model T (and other subsequent models) in his 1922 autobiography titled “My Life and Work.”
In 1913, Henry Ford first started using a conveyer belt on the Model T assembly line, resulting in a significant production increase. Since the company was able to build more vehicles in a shorter period of time, Ford began slashing the price of the Model T.
Some 110 years later, Elon Musk has lowered the prices of the most popular Tesla models six times this year alone. Unlike Ford, though, the reason for the price cuts isn’t a particular major manufacturing breakthrough – even though Tesla is leading in this area with innovations like giga castings, structural battery pack, and more.
It’s simpler than that: Elon Musk wants Tesla to double 2022 production and build 2 million vehicles in 2023 as the company’s newest plants in Berlin and Austin are ramping up capacity.
The strategy is obviously impacting Tesla’s profit margins, which investors understandably don’t like, but Musk has said he knows what he’s doing. He told investors on the Q1 2023 earnings call that “it’s better to ship a large number of cars at a lower margin, and, subsequently, harvest that margin in the future as we perfect autonomy.”
He even said Tesla could technically “sell for zero profit for now and then yield actually tremendous economics in the future through autonomy,” a comment that must have sent shivers down the spines of rival auto executives.
That said, Ford’s CEO doesn’t think Musk’s strategy is a winning one in the long run, suggesting that Tesla should focus on refreshing its fleet instead. “I think what he’s going to learn is product freshness means a lot. The product gets commoditized and then you lose your pricing premium. That’s a really dangerous thing,” Farley said.
He used Ford’s history as an example, noting that Henry Ford eventually learned that lesson, introducing different colors and the Model A. But by then, Chevrolet had dethroned Ford as the top car brand in the United States. Is Farley trying to say Ford is the new Chevrolet?