The electric vehicle price war is expanding beyond China and into the rest of the world as weakening demand pushes automakers like Tesla and Nissan Motor to slash prices.
On October 7, Tesla announced new versions of two flagship models in the US priced about 10% lower than the cheapest existing options, with reduced driving range and more basic interiors. The new Model Y sport utility vehicle starts at USD 39,990, USD 5,000 less than the lowest-priced current version.
The move comes after the climate-skeptic administration of US President Donald Trump scrapped a USD 7,500 tax break on EVs introduced under predecessor Joe Biden at the end of September, effectively making the existing Model Y and other popular models around 20% more expensive. Tesla is rushing to roll out more affordable options to avoid losing customers.
Tesla, which controlled more than 80% of the US EV market five years ago, now sits below 50%, and many investors see its latest move as too little for an effective comeback. CEO Elon Musk has long talked about introducing models priced below USD 30,000.
Although Tesla handles steps from battery production to car assembly in the US for cars for the American market, it has a global supply chain for parts and materials. In particular, it relies on imports from China for rare earth metals needed for batteries and motors.
Beijing has tightened control over rare earth production to secure an edge in trade negotiations with the US. Even for Tesla, a major buyer of the minerals, finding alternative sources is not easy. Protracted trade tensions between the US and China limit the automaker’s options for cutting costs.
General Motors and Ford Motor have been gradually lowering EV prices, with both companies planning to roll out models below the USD 30,000 mark.
Hyundai Motor is slashing prices for new EV models in the US by up to 20% compared with its existing lineup. CEO Jose Munoz has said the South Korean automaker looks to launch more affordable, competitive EVs in Europe, India, and China.
Price cuts are also cropping up in Japan, which has the lowest EV adoption rate among advanced economies. On October 8, Nissan announced a suggested retail price of about JPY 5.19 million (USD 34,200) for the standard version of its revamped Leaf, around JPY 60,000 (USD 395) cheaper than the current equivalent.
That decision comes amid mounting competitive pressure from BYD and other Chinese automakers, which are using low prices to make inroads in nearby Japan as growth in the Chinese EV market slows. Last month, BYD temporarily discounted popular electric models in Japan by as much as JPY 1.17 million (USD 7,710).
The decline in EV prices owes in large part to efforts by Chinese automotive battery manufacturers to expand worldwide. Contemporary Amperex Technology (CATL), the top global supplier, is investing in a battery factory with European automaker Stellantis.
Goldman Sachs forecasts that while EVs will account for only 15% of global automotive sales this year, growth will start accelerating around 2030, bringing the figure to 52% in 2040. In Europe, EV adoption stalled temporarily with the end of government subsidies, but companies like Volkswagen have recently been going back on the offensive with compact models.
“Over the long term, EV prices will decline worldwide,” said Sanshiro Fukao, executive fellow at the Itochu Research Institute. “There’ll be a shift from the phase in which the market is shaped by early adopters to a second phase where it’s shaped by affordable EVs becoming the mainstream.”
Many European and US automakers besides Tesla are losing money on EV operations. The end of purchase subsidies in the US will hit the profitability of companies that relied on government support, making winners and losers clearer and potentially leading to industry restructuring.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.