As Tesla ignites an EV price war, suppliers demand givebacks for Musk

Suppliers saw as ominous last month’s comments by Tesla chief financial officer Zach Kirkhorn that the carmaker was “attacking every other area of ​​cost,” including the supply chain, and would work closely with suppliers. During Tesla’s earnings conference call last week, Musk said the downturn could lead to a “meaningful reduction” in nearly all input costs.

“When (automakers) cut vehicle prices, it’s not good for suppliers because it’s downward pressure,” said Dan Sharkey, an attorney who represents suppliers to Tesla and other automakers. “I’ve never liked it, because I know eventually they’re going to try to make it out of one of us.”

Brooks Wilkins, co-founder of Sharkey & Turco, said, “My message is, there will be no room.” “Many suppliers are struggling financially.”

Most Tesla suppliers, including battery makers Panasonic, LG Energy Solutions and CATL, as well as Italian casting machine maker IDRA Group, refrain from publicly discussing the carmaker because of confidentiality agreements.

Tesla’s cost reduction efforts aggressively come after Cutting Vehicle prices shot up last month, prompting US rival Ford Motor Co to follow suit. This threatens to eat into Tesla’s profit margin, which is among the largest in the industry.

While pressure on suppliers to cut their prices is not new, a Tesla supplier executive who asked not to be identified said the EV leader had focused more on delivery than pricing during the COVID-19 pandemic and was forced to pay more. Was ready to get parts fast. He worries comments on last month’s earnings conference call signal that could change.

Tesla did not immediately respond to a request for further comment on its suppliers.

‘Suppliers are not charities’

According to a study by consultancy Bain, while Tesla and other automakers enjoyed higher vehicle prices and stronger margins during the pandemic, suppliers were not able to fully pass on the higher costs and their margins fell. Automakers’ profit margins were about 3 percentage points higher than suppliers’ in the third quarter of last year.

Industry executives said more price cuts could be painful in a sector where some suppliers are already struggling.

For example, Gissing North America, which counted Tesla as its largest customer, filed for bankruptcy last year, partly due to high labor costs and commodity pricing, acoustic systems and headliners from Michigan. said Steven Wybo, chief restructuring officer of the based maker. For car roof.

“There are some things that I think will ease, but it’s the labor component that’s built into the price of everything, and I think that’s not going to ease any time soon and potentially never,” he said. Said.

Supplier attorney Sharkey warned: “All these suppliers are not charities. They need to make money and if they lose money, they are in financial trouble.”

Industry executives said musk may try to reassure suppliers that any potential losses in lower prices will be made up for by higher volumes.

Nevertheless, some suppliers are raising prices due to material cost inflation.

NXP Semiconductors said Tuesday it is increasing the prices it charges customers, citing its own higher input costs. NXP hasn’t disclosed whether it is a Tesla supplier, but analysts say the rash of Tesla vehicles suggests it is.

“Honestly, we haven’t had a lot of pushback from car companies,” NXP CEO Kurt Sievers told Reuters on Tuesday.

A former Tesla executive told Reuters that Tesla could cut costs with suppliers through “shared” capacity or by twisting suppliers’ arms and taking away some of their profits.

“Tesla will now do what every other (automaker) has been doing for decades,” said the executive on condition of anonymity.

Tesla will face resistance, industry executives warn.

“They’re going to get a lot of push from suppliers to cut costs,” said Laurie Harbour, an industry consultant who works with suppliers.

The text of this story is published from a wire agency feed without any modification.