Several automakers, including vintage car giant Ford (New York Stock Exchange: F), have lowered the prices of their electric cars in China since Elon Musk-led Tesla (Nasdaq: TSLA) caused a price war by lowering the prices of its Model 3 and Model Y cars. Car companies are trying to stimulate demand amid China’s weak economy and growing competition. In addition, China has ended subsidies for the purchase of new energy vehicles.
What’s more, some electric car makers are trying to entice buyers with promotions ahead of next month’s Shanghai Auto Show, when the latest models are generally launched.
Intense price war
Foreign automakers are finding it difficult to compete with domestic electric car makers in China, which have emerged rapidly in recent years. according ReutersEarlier this month, Ford began offering a 40,000 yuan (more than $5,700) discount on its Mustang Mach-E SUV in China through the end of April. Also, the Detroit-based automaker cut prices of the Mach-E by as much as $5,900 in the US market in January, following Tesla’s price cuts for the Model Y crossover.
It appears that Ford is trying to revive demand for the Mach-E in China. Citing industry data, Wall Street Journal He noted that only 84 of the standard-issue battery-powered Mustang Mach-E SUV were sold in China in February, down significantly from about 1,500 in December. It should be noted that the December sales surge was the result of a discount of almost 9% from the original price.
China, the world’s largest auto market, is seeing not only price cuts for electric cars, but also price cuts for gas-powered cars. according to Wall Street Journaland some General Motors dealers (New York Stock Exchange: GM) Cadillac offers short-term discounts of about 25% on the CT5 combustion engine sedan. General Motors has been losing ground in China in recent years. newly CNBC The report indicated that GM’s market share (including joint ventures) in China declined from about 15% in 2015 to 9.8% in 2022.
Meanwhile, last week, the German joint venture between Volkswagen (DE: vow) and SAIC Motor in China to offer discounts of between 15,000 and 50,000 yuan through April 30 for its full lineup of gas-powered cars and electric vehicles. Daiwa Capital Markets analyst Kelvin Lau highlighted that gas-powered vehicle dealers plan to get rid of about 500,000 vehicles in their inventory, including older models that won’t meet strict emissions standards that will take effect in July.
Apart from foreign automakers, many Chinese auto companies are also cutting prices to boost demand. Overall, a price war could squeeze automakers’ margins at a time when they are already facing rising input costs and declining demand.
Is Ford a Good Stock to Buy?
Ford is aggressively pursuing its electric vehicle growth strategy. However, the harsh macroeconomic backdrop and the ongoing price war could hurt its margins. Wall Street is sidelined on Ford, with a consensus rating of Hold based on four Buys, seven Holds, and three Sells. Ford’s average share price target of $13.08 indicates an upside potential of 11.6%.
Conclusion
Many automakers have joined the price war initiated by Tesla to increase demand. These price wars could seriously hurt automakers’ profitability if they don’t see a significant rise in volumes after price cuts.
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