Ford CEO Jim Farley feels Tesla CEO Elon Musk waging a price war to sustain demand is simply him taking a leaf out of Henry Ford’s book
It’s no secret that Tesla CEO Elon Musk has waged a pretty serious price war by announcing multiple price cuts for his EVs. This has helped him sustain demand during an era of sales slump, but the move has made many other carmakers rethink their pricing strategy. While this strategy has left many awed, Ford CEO Jim Farley feels that what Musk has done is simply following a strategy originally devised by Henry Ford in 1913.
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Jim Farley Suggests Elon Musk Has Followed Henry Ford’s Price Cut Strategy
Back in the day, Henry Ford slashed prices of the Ford Model T to boost its sales. The aggressive pricing worked in favour of Ford and the Model T went on to taste unprecedented sales success. As per Farley, the price war waged by Tesla is merely following Henry Ford’s strategy. In fact, some reports have quoted Jim Farley as saying that Musk’s move is a ‘play right out of Henry Ford’s Model T playbook.’
The importance of price cuts for the Model T and even some later cars has been explained by Henry Ford in his autobiography, ‘My Life and Work’. In 1913, the ‘Father of the Auto Industry’ used a conveyer belt on the assembly line for the Model Y. This led to improved production efficiency and the carmaker could easily boost its production. Working at higher efficiency enabled Ford to price its cars more aggressively. This, in turn, led to a price war in the then auto industry.
Elon Musk Targets Production of 2 Million Units This Year
Over a century later, the Tesla CEO has used a similar strategy to enhance the sales performance of Tesla models. The carmaker has reduced the prices on multiple occasions in the last few months. This year alone, Tesla has announced as many as six price cuts. Musk targets doubling up the production of his company on an Year-on-Year basis. With this, he targets production of a whopping 2 million vehicles in 2023. In line with this, the Gigafactories in Austin and Berlin have ramped up the production.
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The consecutive price cuts have had a detrimental effect on the industry-leading profit margins of Tesla. This has, in fact, even had a negative effect on the share prices. Musk, however, asserts faith in his decision. During the announcement of Q1 2023, he even said it’s better to deliver more cars at lower profit margins and harvest that margin in the future as the carmaker would earn from its autonomous driving software.
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