GM draws target on Tesla with EV price cut
The Chevrolet Bolt EV is pictured at the 2016 Los Angeles Auto Show in Los Angeles, November 16, 2016. REUTERS/Mike Blake Purchase Licensing Rights
NEW YORK, June 2 (Reuters Breakingviews) - General Motors (GM.N) is at least beating Tesla (TSLA.O) on one front. The $57 billion Detroit automaker run by Mary Barra lowered the price on its lead electric vehicle on Wednesday, taking it down so much that it can compete with compact gas guzzlers. As Tesla slowly ups the price on its models, GM might be able to use its sub-$30,000 Chevy Bolt to do what no legacy carmaker has managed: steal Tesla’s thunder. The only catch is that Barra doesn’t have forever.
Tesla’s boss Elon Musk has long been skeptical of the Bolt, claiming in 2017 that the structure of government subsidies meant GM would never produce more than around 25,000 vehicles a year. And, indeed, GM’s U.S. sales topped out around there in 2021. Subsidies that expired in 2020 partly got in the way. But the carmaker was also forced into a total shutdown of manufacturing last year over battery issues, setting the Bolt back.
With an 18% price cut, the entry-level Bolt is about in line with the average price Kelley Blue Book puts on compact cars in April. It’s possible that GM’s per-unit profits don’t budge, if customer purchase incentives are rolled back, say, and the price cut is just illustrative for prospective car buyers. Still by lowering the sticker, Barra effectively starts a price war.
The aggressive move shows just how badly she needs to make headway. The Bolt’s sale numbers pale compared to Tesla, which has an annual production capacity of 500,000 Model 3 and Model Y cars in its California plant alone. Rival Ford Motor (F.N) has launched an electric version of the F-150, America’s best-selling car. And Ford boss Jim Farley has made it clear that he is similarly ready to compete on price.
But the electric vehicle business isn’t getting cheaper. The cost of materials is rising, including for batteries, which are vulnerable to lithium prices that have skyrocketed. Chip shortages are also complicating matters. These issues have led competitors, including Tesla, to raise their sticker prices.
In the near-term, these pressures will continue to force carmakers into decisions about cash spending. Last year, GM’s operating cash flow was positive, but investments ate up that pot and then some. It speaks to why Barra is aiming squarely at Tesla. She needs to show EV plans are working, but before they run out of charge.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
CONTEXT NEWS
Detroit-based automaker General Motors said on June 1 that it would cut the price of its Chevrolet Bolt electric vehicle to start at $26,595, an 18% reduction and the lowest suggested retail price for a mass-market U.S. electric car. GM first began production of the Bolt in 2016.
A $7,500 federal tax credit for Bolt vehicles phased out by March 31, 2020.
The average transaction price for a new car in April was $46,526, according to Kelley Blue Book, with electric cars averaging $65,111 and compact cars averaging $26,169.
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Editing by Lauren Silva Laughlin and Sharon Lam
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