Tesla's recent price war has raised concerns among its suppliers as the company aims to keep costs low. During the fourth quarter and full-year 2022 earnings call, Tesla's executives highlighted their focus on cost optimization, with CFO Zach Kirkhorn mentioning the company was “attacking every area of cost”. However, this news has not been received positively by all suppliers.
Dan Sharkey, a lawyer who represents automotive suppliers, noted that aggressive price cuts are never good news for suppliers and that “there's not going to be any room there” as many suppliers are already financially struggling.
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During the pandemic, Tesla was reportedly more focused on delivery over pricing and was willing to pay a premium for faster parts acquisition. Following the earnings call, a Tesla supplier (who chose to remain anonymous) expressed concern that this trend might change. However, Tesla has not made any official statement on the matter.
The pandemic saw notable margins for carmakers like Tesla, but some suppliers reportedly struggled to fully pass on their increased costs, resulting in lower margins. Profit margins for automakers were estimated to be 3% higher than suppliers in Q3 2022.
With lower prices, suppliers may experience even more pressure. Some, like Gissing North America, have already faced difficulties, with the Michigan-based company filing for bankruptcy due to high commodity prices and labor costs.
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Industry officials suggest that Tesla might aim to reassure suppliers by highlighting that the potential losses from lower prices will be offset by higher volumes of orders. This would be beneficial for both Tesla and its suppliers, especially as the electric vehicle maker aims to ramp up production to 20 million vehicles per year by the end of the decade.