On Wednesday (October 18th), Tesla executives held a cautious attitude towards expanding electric vehicle production capacity at their latest phone performance meeting, citing the uncertainty of the economic outlook, highlighting concerns about slowing demand among automakers.
Tesla CEO Elon Musk stated that although prices have been significantly reduced, he is concerned that higher borrowing costs will discourage potential customers from purchasing. "I don't want to move forward at full speed in uncertainty," he said
Not only Tesla, but large car companies such as General Motors and Ford also hold the same view.
Alert to slowing demand
Musk said in a conference call after the financial report was released, "If there is economic uncertainty, people will hesitate to buy a new car
He also pointed out that he will wait for the economic situation to become clear before expanding his factory construction plan in Mexico.
Meanwhile, General Motors announced on Tuesday (17th) that it will postpone the production of Chevrolet Silverado and GMC Sierra electric pickup trucks at a factory in Michigan for one year, citing a trend towards flat demand for electric vehicles.
Ford Motor also announced last week that it will temporarily reduce the production capacity of its Michigan factory F-150 Lightning electric pickup trucks from a three shift system to a two shift system. In July of this year, the automaker had already slowed down the growth rate of electric vehicles and shifted investment towards commercial and hybrid vehicles.
Electric vehicle startup Lucid announced on Tuesday (17th) that its third-quarter production plummeted by nearly 30%. Although they offered a significant discount, the delivery volume only slightly increased.
Rivian, a car company backed by Amazon investment, also disappointed investors with quarterly data released this month. Although its third quarter data was stronger than expected, the company did not raise its annual production forecast. The company mainly produces electric pickup trucks and sport utility vehicles (SUVs).
The 'trough' of demand
The investment of car manufacturers in electric vehicles depends on their performance in the coming quarters. Concerns about slowing demand have been intensifying, while companies are struggling to cope with supply chain restrictions that disrupt production plans.
Tom Narayan, a global automotive analyst at Royal Bank of Canada Capital Markets, said, "This does highlight the possibility of a slowdown in demand for electric vehicles in the short term. However, this is more related to pricing and affordability than a denial of electric vehicles
Narayan expects this to be a "trough", with the decline in electric vehicle prices and the emergence of low-priced models, the situation will improve.
In order to prevent demand from weakening, Tesla, the leader in the industry with leading profit margins, took the lead in adopting the most radical price reduction measures, forcing other companies to follow suit, thereby squeezing the industry's average profit level.
But Musk said that in some cases, the increase in financing costs caused by rising interest rates almost completely offsets the positive stimulus brought by price drops to customers.
Musk's latest statement, "If interest rates remain high... it's difficult for people to buy a car. They can't afford it at all
According to current market estimates, this situation (interest rate cuts) will not occur in the United States until June 2024, and recent strong economic data suggests that the Federal Reserve may maintain higher interest rates for a longer period of time.
Musk also added that if interest rates fall, he will "accelerate" the expansion of Mexican factories, but due to the current global economic situation, he is not yet ready to "fully" build.