Suppliers Brace for Price Cuts as Tesla Sparks EV Price War

Tesla Inc. and its suppliers have been under pressure to reduce costs in order to keep up with the company’s aggressive price cuts in a slowing economy. Chief Executive Elon Musk and Chief Financial Officer Zach Kirkhorn have both stated that the automaker is “attacking every other area of cost” and that a recession could lead to “meaningful decreases” in almost all of its input costs. This pressure has caused a ripple effect throughout the supply chain, as suppliers are now being asked to cut their prices further.

The suppliers are in a difficult position, as they are unable to pass along higher costs to their customers and their margins have been falling. This, combined with the fact that some suppliers are already struggling financially, has caused concern among the industry.

In response to the pressure, some suppliers are increasing prices due to material cost inflation. NXP Semiconductors, for example, has announced that it is increasing the prices it charges customers due to higher input costs.

Tesla’s cost-cutting efforts have been met with resistance from suppliers, who are worried that any potential losses they suffer in lower pricing will not be made up in higher volume. Industry consultant Laurie Harbour has warned that Tesla will “get a lot of pushback from suppliers to cut costs”.

Despite the resistance, Tesla is likely to continue its cost-cutting efforts in order to remain competitive in the market. The company may look to negotiate cost reductions with suppliers through shared efficiencies or by simply taking some of their profit away. Suppliers will need to remain vigilant and ensure that they are able to protect their margins in order to remain profitable and stay in business.