Tesla’s suppliers may face increased pressure from CEO Elon Musk to encourage them to cut prices on components, following the automaker’s steep price cuts and the subsequent price war in the industry, according to industry officials and the company’s suppliers in a report from Reuters.
CFO Zachary Kirkhorn stated last month that Tesla had been “attacking every other area of cost,” including the supply chain. Kirkhorn also said Tesla would work closely with suppliers on the new price cuts.
“It is never good for suppliers when (automakers) cut vehicle prices because that pressure rolls downhill,” said Dan Sharkey, an attorney for suppliers to Tesla and other auto brands. “I never like it, because I know eventually they’re going to try to get it out of one of us.”
Tesla Increasing Giga Shanghai Output to Meet Price Cut Demand:Â Report https://t.co/AEETRBjLrC
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Last week during Tesla’s Q4 earnings call, Musk said that the coming recession could cause “meaningful decreases” to almost all of the automaker’s input costs and supply needs.
Two people with knowledge of the matter said that Tesla had also been pressuring suppliers in China to cut costs.
During the early COVID-19 pandemic, while Tesla was able to benefit from strong margins and higher vehicle prices, suppliers could not pass along costs to consumers, causing their margins to fall, according to a study by consulting firm Bain.
Reuters claims one supplier said Tesla tossed the idea of a 10% price cut in a mid-January meeting, due to increasing competition.
“My message is, there’s not going to be any room there,” Sharkey added. “Many suppliers are financially struggling.”
