Ford Cuts Prices In Response To Tesla’s Reductions

Key takeaways

• In response to Tesla cutting prices, Ford announced it would reduce the price of its Mustang Mach-E
• The price cut will cause Ford to lose money on some trim levels, but the company is looking at cost-saving measures to offset the loss
• This could be the start of an EV price war between car manufacturers

Tesla’s announcement of price cuts for its electric vehicles is forcing some other automakers to follow suit. Ford is one company trying to remain competitive with Tesla as it recently announced price cuts to its Mustang Mach-E.

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Here is what this means for those looking to buy the car and how this price reduction will impact Ford moving forward.

Ford Cuts prices on some of its EVs

On January 30, 2022, Ford announced it would cut pricing on its Mustang Mach-E by as much as $5,900. The entry-level versions of the eSUV received between $600 and $900 in price reductions, while models with longer-range batteries and premium packages will see reductions of $3,680 to $5,900.

Ford’s CEO, Jim Fairley, stated that Ford “wants to make EVs more accessible, so we’re increasing production and reducing prices across the Mach-E lineup.” He followed up with a comment that increased production reduces costs and allows the automaker to pass those savings along to customers.

Ford is currently producing 78,000 Mach-E units annually and will increase production to 130,000 units.

The price cuts will automatically apply to customers who ordered Mach-Es and are waiting for delivery. Ford’s credit division offers an incentive in the form of a subsidized interest rate for customers who order a Mach-E between January 30 and April 3, 2023. The least expensive Mach-E starts at $43,990, which qualifies for the Inflation Reduction Act’s $7,500 EV credit.

In what could be the most interesting move by Ford, the company revealed it would reach out to recent Mach-E owners, including those who purchased their vehicle in 2023 and have received it, to make a private offer that will help them save money.

When Tesla announced its price reductions, many recent buyers were upset that they paid the higher price. In some cases, there were even protests. Ford is looking to avoid this situation by offering recent buyers something, though the specifics are unknown at this time.

The response to Tesla’s recent price cuts

The Mach-E is the third-best-selling electric vehicle in the U.S., behind Tesla’s Model 3 and Y, and Ford is the second-best automaker behind Tesla. Tesla announced it would reduce both models’ prices in mid-January due to slowing sales and the EV tax credit. By lowering its price, some of Tesla’s vehicles will qualify for the tax credit, as the car needs to cost $55,000 or less.

Ford’s reduction of the price of the Mach-E is a natural response to remain competitive and push its model higher up the ranks of best-selling EVs.

Impact of price cuts on Ford’s bottom line

The price cuts on the Mach-E mean that Ford will lose money on some, but not all, of their EVs. As it currently stands, profitability on the Mach-E has been irregular due to swings in commodity costs. At one point in 2022, Ford lost money on each Mach-E it sold, but it has regained profits as inflationary pressures have eased.

Ford expects to see profitability on the Mach-E and other EVs it produces as manufacturing technology improves and cost efficiencies are realized. It views the losses as a temporary issue that will eventually be resolved and allow its Mach-E to turn a profit.

Should you buy an EV now or wait?

For many, the desire to own an EV is understandable. An immediate cost saving comes from not stopping at the gas station to fill the tank. Instead, it costs between $50 and $60 a month for electricity to fully recharge the batteries on an EV for average driving conditions.

EVs also require far less maintenance than a traditional internal combustion engine. However, battery pack replacement costs are still high.

Other automakers have yet to follow suit in reducing their EV prices, but economic pressures and improvements in battery production will eventually push them to lower prices. It’s only a matter of time before prices go down, making EVs a sensible purchase for the average auto buyer.

Price-sensitive car buyers who want to own an EV are poised to benefit from lower prices as the EV market saturates, production issues are resolved and streamlined and the charging infrastructure across the U.S. improves.

Should investors buy Ford stock?

Many analysts have been bullish on Ford stock. However, their most recent earnings report shows there is still a lot of work the automaker needs to do to improve profits. The cost-cutting on their most popular EV is a direct response to trying to keep up with Tesla.

Long-term investors could use pullbacks, like the one currently happening, to start a position in Ford and build over time. However, if you want to invest in the electric vehicle sector as a whole, consider the Clean Tech Kit from Q.ai. This Investment Kit includes multiple companies involved in renewable energy and uses artificial intelligence to invest based on trends in the market.

The bottom line

Ford responding to Tesla’s price cut with its price reduction on the Mustang Mach-E signals that it is feeling the pressure from Tesla to keep up. It is too early to tell whether this move will motivate buyers to purchase the EV.

Either way, it’s good news for consumers as competition in the EV market heats up, a potential sign that prices will begin to drop.

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