Tesla joins GM, Ford in slowing EV factory ramp as demand fears spread
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[October 19, 2023] By
Abhirup Roy and Ben Klayman
SAN FRANCISCO (Reuters) - Tesla on Wednesday joined General Motors and
Ford in being cautious about expanding electric vehicle (EV) production
capacity, citing economic uncertainties and underscoring fears of a
slowdown in demand.
Tesla CEO Elon Musk said he was worried that higher borrowing costs
would prevent potential customers from affording its vehicles despite
substantial price cuts, and that he would wait for clarity on the
economy before ramping up its planned factory in Mexico.
"People hesitate to buy a new car if there's uncertainty in the
economy," Musk said on a post-earnings call where he also talked about
"paycheck-to-paycheck" pressures on American workers. "I don't want to
be going into top speed into uncertainty."
Musk's comments came after warning bells from other automakers and EV
startups. It sent shares of Tesla down 7% in premarket action Thursday
as well as shares of other EV makers.
GM said on Tuesday it would delay production by a year of Chevrolet
Silverado and GMC Sierra electric pickup trucks at a plant in Michigan,
citing flattening demand for EVs.
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Detroit peer Ford said last week it would temporarily cut one of three
shifts at the plant that builds its electric F-150 Lightning pickup
truck. The automaker in July slowed its EV ramp-up, shifting investment
to commercial vehicles and hybrids.
EV startups Lucid and Rivian were also lower in premarket Thursday
trade, each losing more than 2%.
Lucid on Tuesday reported a near 30% plunge in third-quarter production
and only a marginal increase in deliveries despite big discounts,
raising worries about demand for its Air luxury sedan.
Rivian, which makes electric pickup trucks and sport utility vehicles,
also disappointed investors this month when it shied away from raising
its full-year production forecast despite stronger-than-expected
third-quarter numbers.
"It does highlight that there could be a slowdown in EV (demand) in the
near term," said Tom Narayan, global autos analyst at RBC Capital
Markets. "But it has more to do with pricing and affordability than a
rejection of EVs."
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![](../images/101923PIX/busine79.jpg)
A sign is pictured at the location of a new Tesla, Inc. electric
automotive which is undergoing renovation from being a former BMW
dealership in Encinitas, California, U.S.,October 18, 2023.
REUTERS/Mike Blake
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Narayan said he expected this to be a "dip" that improves as prices
of EVs fall and lower-priced variants are available.
Automakers have billions of dollars in EV-related investments riding
on how the next several quarters play out. Worries about slowing
demand have been rising just as companies come to grips with supply
chain constraints that wrecked production plans.
Reuters reported in July that the U.S. market was not growing fast
enough to prevent unsold EVs from stacking up at some auto
dealerships.
To prevent demand from waning, market leader Tesla, with
industry-leading profit margins, has been the first and most
aggressive in slashing prices, forcing others to follow suit and
squeezing margins.
But Musk said higher financing costs due to rising interest rates
meant to fight stubbornly high inflation in some cases almost
entirely offset the price reductions, making consumers looking to
shift away from gas-guzzling vehicles wary.
"If interest rates remain high ... it's that much harder for people
to buy the car. They simply can't afford it," Musk said, adding he
would "accelerate" expansion of the Mexico factory if interest rates
come down.
That is not expected in the United States until June 2024, based on
current market estimates, with recent robust economic data
suggesting the central bank might leave interest rates higher for
longer.
(Reporting by Abhirup Roy in San Francisco and Ben Klayman in
Detroit; Editing by Jamie Freed)
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