DETROIT (Reuters) – Electric car giant Tesla’s decision to cut prices to drive up sales volume reflects the pressure it faces from competition and an ageing product line-up, Ford Chief Executive Jim Farley said on Thursday.
Farley said Tesla’s price cuts underscore intense competition in the two-row crossover or SUV segment of the auto market, where Tesla’s best-selling Model Y faces a range of newer rivals in China and other markets.
Ford, he said, would focus on less-crowded segments like pickup trucks and vans.
But Tesla’s ability to adjust prices quickly, and its “reductive” focus on squeezing costs out is a competitive advantage, and other automakers would have to follow its lead in cutting prices, Farley said.
Tesla’s share price dropped almost 10% on Thursday, cutting more than $50 billion from its market value, after Musk said the company would discount as needed to drive up demand.
“Honestly, anyone surprised at this, I don’t understand,” Farley told reporters, speaking on the sidelines of a charity event on Thursday evening in Detroit.
“You have to be able to respond quickly” to Tesla’s strategy, he said. “That agility he’s building is super important for everyone.”
Farley said Ford was moving quickly to have a second-generation electric vehicle (EV) ready since the pace of product overhauls is happening far faster pace with EVs than with other cars.
“We used to think we would have a model year,” Farley said. “Now with Model e, four times a year we have a model year,” he said in reference to the pace of change for electric vehicles.
Musk said this week that Tesla would be able to cut prices now – even potentially to zero profit – and earn more later on software and services when it has technology available that allows for autonomous driving.
Many analysts are skeptical about that projection.
Tesla is readying a new version of the Model Y, code-named Juniper, but has not disclosed details. Since January, Tesla has cut the price of the long-range version of the Model Y by $13,000 in the U.S. market.
Although Tesla pushes frequent software updates to customers, the Model Y has not had a major, visible redesign since its first deliveries in 2020.
“I think what he’s going to learn is that product freshness matters a lot,” Farley said of Musk.
Ford’s own history has a cautionary note for Musk, who appears to be modeling the Tesla playbook on what Henry Ford did, Farley said.
Ford drove down costs for the Model T and created a mass market with production innovation. But it failed to respond to customer demands and new competition, with Henry Ford famously insisting the only color available would be black.
“You could have had red or green, but it took them 10 years,” Farley said.
(Reporting by Jospeh White in Detroit; Editing by Kevin Krolicki and Kenneth Maxwell)