Is the Automobile Bubble Bursting?

[JoeWras]

Yes, I think it's a shame the EV thread is closed. This weekend I was involved in the installation of a home EV charger and I would have posted what I think are some interesting aspects of that but, alas, the thread is closed.

Holding restraint here on this thread may allow the moderators to consider re-opening the EV thread. They said it was temporary.

If we go off the rails here, you can forget about any EV thread reopening.

 

[CaptTom]

Time will tell, but I doubt the luster is fading from Tesla.

Maybe luster wasn't the right word. Some of the newness and excitement has worn off. I think some folks are beginning to see Musk as a real human, rather than some sort of tech god. I'm hearing good things about the competition, so Tesla is no longer the only game in town. And there's this:

TSLA stock is way down. They're under pressure after the last quarterly report didn't meet expectations.

This is all good for consumers, and good for the industry. EVs are a true disruption and the sooner we get through the transition, the better.

...It is fantastic that BYD is selling loads of electric vehicles!

But it's not so good that half of those are hybrids and not EVs. Hybrids have two motors and a battery so they get less miles/gallon. They are basically a scam in my opinion - getting EV discounts while continuing to pollute.

I see it a bit differently. To stay within topic, the hybrid is a bridge to help both buyers and manufacturers get through the disruption. They're affordable, already in mass production and have unlimited range.

The hybrids I've seen get better mileage than a comparable straight ICE vehicle. They can use a smaller, more efficient engine because they have the battery to help with acceleration. They also don't need to idle the engine in stop-and-go traffic.

I hope the technology improves to the point where I can skip over hybrids and go right to an EV some day. But if I were buying new today, I think a hybrid would be my best option.

 

[JoeWras]

Bubble. Finances. Not EV or hybrid tech. We continue to veer. EV or hybrid prices? Yes.

On topic:
- Tesla skyrocketed prices last year and now is popping them.
- Hybrids, especially Toyota hybrids, continue to be in very high demand and short supply, thus causing high prices to remain sticky.

 

[aja8888]

If I were to buy a new (or used) car now, I would certainly wait for prices to settle back to more "normal" pricing schemes. And based on the fact that I am retired and drive locally most of the time (12 K miles per year, on average), I would buy a hybrid.

When I take my annual 4,000+ mile trip back east to CT and down thru North Carolina to visit family and friends, the gasoline engine would allow me more flexibility for fuel stops than having a battery to charge.

Around town, the hybrid would run on battery most of the time.

My friend has a newer Camry hybrid and that's how he is seeing things in real life. He averages 50+ MPG with the Camry with mostly town driving and some local highway.

Here's a recent article on used car pricing:

https://wolfstreet.com/2023/01/16/h...cle-dealers-for-buyers-patience-will-pay-off/

The used-vehicle market now has a huge hangover: The price spike from August 2020 till early 2022. Over this period, retail prices spiked by mind-boggling ridiculous amounts – 40% per the average used vehicle listing price, according to Cox Automotive; 53% per the used-vehicle CPI, according to the Bureau of Labor Statistics – though there never was a shortage of used vehicles.

But now there is increasing resistance in the market against these prices, and used-vehicle retail sales in December dropped 10% year-over-year, to about 1.29 million vehicles, according to Cox Automotive.

 

[NW-Bound]

On Jan 2, 2021, we bought a Chevrolet Equinox. There were many other cars we preferred, but the Equinox was one of the few with an AT that could be flat-towed behind an RV.

We had a good price, because GM was running a sale campaign, and offered employees' prices to the public.

After the above luck, we were sitting pretty and patted ourselves on the back watching car prices climb to ridiculous values later. Yes, bubble indeed.

But I don't care about car price bubble as much as stock price bubble. My stash is worth many cars.

 

[wmc1000]

Even when they claim to be selling at MSRP or below, there are new tricks being added. The dealer where we bought our VW last year has changed hands and has now imposed a $949 documentation fee instead of $350!

I'm sure that every dealer in town will be adding that to their prices within weeks. Easier to simply stay away than to negotiate based on that sort of legalized thievery.

We have a VW dealer here who advertises they will never add a dealer doc fee or market adjustment.

 

[REWahoo]

We have a VW dealer here who advertises they will never add a dealer doc fee or market adjustment.

I've seen dealers who say this, then add "mandatory" dealer installed equipment like paint protection, locator service, etc.

They have many ways to try to squeeze more $ out of you.

 

[audreyh1]

When we ordered the Tesla Model X LR in April of 2021 our configuration was just under $95K. Tesla honors your original order price. By the time we finally took delivery in June of 2022 our configuration price had soared to $130K! I just checked and our configuration has come back down quite a bit - now just under $115K. I think that was the price it had increased to at the end of 2021. So they walked back the 2022 price increases.

We had to wait through a major model refresh which meant changing the factory line, our 5 seat long range configuration being one of the last configurations to be brought onto the new line, plus constant part shortage constraints impacting all the models. Lead times had stretched out so much Tesla started raising prices aggressively in late 2021 and during 2022 expecting component prices to continue increasing. A lot of those issues have now resolved.

 

[JoeWras]

Thanks Audrey.

We'll have to see if Telsa is some sort of canary in the coalmine (in a good way, i.e. good news) regarding the supply chain. Or is it all the "other stuff" with Tesla. Or just more EV competition. Or the interplay with government incentives.

When I check up on my local ICE inventory (Toyota, Chevy, Subaru), I see little to no change from December. Toyota is still whacked. Nothing. ZERO. The other two have some, but not much.

This is a weird time of the year though.

 

[NW-Bound]

The big price cut of Tesla cars has caused recent customers upset that they paid too much for their cars.

I say, tough luck. Same as paying too much for any stock in an equity bubble, you don't get a refund when the market crashes.

Some Chinese buyers were more than upset. A few hundreds of them stormed Tesla sales offices wanting some money back.

See this link for a video of the Chinese irate crowd: https://www.slashgear.com/1167651/r...ter-new-price-cut-leaves-them-feeling-robbed/

 

[REWahoo]

The big price cut of Tesla cars has caused recent customers upset that they paid too much for their cars.

I wonder if Tesla will do what GM did when in June of 2022 they suddenly cut the price of the 2022 Chevy Bolt by offering rebates of $5,900 - $6,300. Within a few weeks of the announcement, GM offered a refund of this amount to anyone who had purchased a Bolt in 2022, prior to the refund offer.

One catch - in order to get the $, those who purchased prior to the refund offer had to agree to "... never sue the company for any present or future issues with the car or its battery or join any class action suits related to the Bolt."

My understanding is almost everyone eligible signed on the dotted line.

 

[audreyh1]

Thanks Audrey.

We'll have to see if Telsa is some sort of canary in the coalmine (in a good way, i.e. good news) regarding the supply chain. Or is it all the "other stuff" with Tesla. Or just more EV competition. Or the interplay with government incentives.

When I check up on my local ICE inventory (Toyota, Chevy, Subaru), I see little to no change from December. Toyota is still whacked. Nothing. ZERO. The other two have some, but not much.

This is a weird time of the year though.

I believe that at the time of the 2022 price increases Tesla stated that these were due to parts shortages, parts price increases and much longer than usual lead times, and might come back down if the situation improved.

I’m sure government incentives helped with the recent Models Y and 3 repricing, but I now found out that their high end cars were repriced too.

Canary in the coal mine? I think it’s pretty hard to spin that. Tesla delivered 40% more vehicles in 2022 compared to 2021. https://insideevs.com/news/628283/tesla-q4-2022-deliveries/

Were the 2022 prices increases unsustainable once the lead times dropped significantly? Perhaps. Tesla brought several new factories online worldwide last year, so their capacity is much larger now.

In terms of other EV competition - it will be interesting to see. Tesla still ships way more EVs in the US than their competitors. I expect the serious price competition will be around their 3 and Y models. The high end models - some of the competitors are even more stratospheric so not nearly as much price sensitivity there. Yet Tesla decided to roll back 2022 price increases on those models too. Business-wise Tesla doesn’t need to build the high end models anymore to do well, but I’m glad they are still building them.

 

[NW-Bound]

I wonder if Tesla will do what GM did when in June of 2022 they suddenly cut the price of the 2022 Chevy Bolt by offering rebates of $5,900 - $6,300. Within a few weeks of the announcement, GM offered a refund of this amount to anyone who had purchased a Bolt in 2022, prior to the refund offer.

One catch - in order to get the $, those who purchased prior to the refund offer had to agree to "... never sue the company for any present or future issues with the car or its battery or join any class action suits related to the Bolt."

My understanding is almost everyone eligible signed on the dotted line.

A rebate for a purchase in an entire year of 2022 is indeed unexpected. I seriously doubt that Tesla would match it. EV total sale is a small part of GM revenues, but Tesla loss due to the rebate would be huge.

I wonder about the waiver though.

 

[JoeWras]

Canary in the coal mine? I think it’s pretty hard to spin that. Tesla delivered 40% more vehicles in 2022 compared to 2021. https://insideevs.com/news/628283/tesla-q4-2022-deliveries/

Man, I can't communicate. My fault. Terrible metaphor.

What I meant was maybe Tesla is a "Butterfly in the meadow" showing that the supply crisis is winding down.

 

[JoeWras]

A rebate for a purchase in an entire year of 2022 is indeed unexpected. I seriously doubt that Tesla would match it. EV total sale is a small part of GM revenues, but Tesla loss due to the rebate would be huge.

I wonder about the waiver though.

The Bolt had some serious stuff going on then too. Not just a CEO who got loud, but rather issues with the car where GM asked them to park it. Some of that rebate was good will.

 

[audreyh1]

Man, I can't communicate. My fault. Terrible metaphor.

What I meant was maybe Tesla is a "Butterfly in the meadow" showing that the supply crisis is winding down.

I get the impression that auto part shortage situation in general has improved a lot. Tesla also had to deal with several China factory shut downs during 2022.

 

[explanade]

High interest rates, if they remain high or go even higher, will hurt auto sales at some point.

Cash buyers would be in good shape but only so many of those.

 

[audreyh1]

Man, I can't communicate. My fault. Terrible metaphor.

What I meant was maybe Tesla is a "Butterfly in the meadow" showing that the supply crisis is winding down.

That’s supposed to generate a hurricane, ha ha!

 

[REWahoo]

The Bolt had some serious stuff going on then too. Not just a CEO who got loud, but rather issues with the car where GM asked them to park it. Some of that rebate was good will.

Yep, definitely.

I bought (reserved) one sitting on a dealer's lot awaiting a new battery within a couple of weeks of the announced rebate. I had zero problems taking advantage of this corporate good will offering. I was already looking at buying one and this, combined with another rebate, sealed the deal.

 

[Christine]

The big price cut of Tesla cars has caused recent customers upset that they paid too much for their cars.

It may seem like these protests were organized by an employee from another chinese car maker - BYD:

https://finance.yahoo.com/news/tesla-price-cut-sees-customers-134246444.html

Which to me indicates that BYD got really scared they would have to reduce prices. And that would probably hurt much more for BYD since Tesla make ~11 times as much profit per car:

https://cleantechnica.com/2022/09/0...n-tesla-but-tesla-makes-11-times-more-profit/

"Looking at revenue, Tesla took in $35.7 billion in the first half of 2022 compared to BYD’s $21.8 billion. The difference in terms of profit is even more notable. Tesla brought in $5.6 billion in profits, while BYD brought in $0.5 billion. On corporate terms, that’s a massive difference."

At this point I am not sure many other car makers could cut prices with 20% and still maintain a profit. Their EV offerings mostly have negative margins already.

Will Tesla gain market share or will the others lower their prices too?

 

[NW-Bound]

It may seem like these protests were organized by an employee from another chinese car maker - BYD:

https://finance.yahoo.com/news/tesla-price-cut-sees-customers-134246444.html

I read the story. Yes, the BYD employee had every right to be upset that his wife bought a Tesla car and not a BYD car, and she overpaid on top of that.

Which to me indicates that BYD got really scared they would have to reduce prices. And that would probably hurt much more for BYD since Tesla make ~11 times as much profit per car:

https://cleantechnica.com/2022/09/0...n-tesla-but-tesla-makes-11-times-more-profit/

"Looking at revenue, Tesla took in $35.7 billion in the first half of 2022 compared to BYD’s $21.8 billion. The difference in terms of profit is even more notable. Tesla brought in $5.6 billion in profits, while BYD brought in $0.5 billion. On corporate terms, that’s a massive difference."

At this point I am not sure many other car makers could cut prices with 20% and still maintain a profit. Their EV offerings mostly have negative margins already.

Will Tesla gain market share or will the others lower their prices too?

It is exactly because Tesla has a bigger profit margin than other car makers that its stock has been valued so highly. The price cut definitely reduces that profit, and the stock has to be repriced to reflect it.

What is interesting to watch to unfold is whether this repricing has been complete or will continue.

 

[freedom2022]

You can get 0% financing for three years from Ford.
Other manufacturers will follow suit.

 

[Car-Guy]

^^^^^
That should make for some interesting drive out price negotiations.

 

[explanade]

It's pretty unprecedented to cut prices that much right?

Some cuts were over $10k?

I can't recall ever seeing that, the manufacturer's cut prices.

At some point the dealers will have to sell cars under MSRP too.

Of course Tesla raised prices a lot the past two years so you could argue that they're bringing them back down to levels more appealing to buyers. You know back when they had months or over a year of backlog?

 

[Christine]

You can get 0% financing for three years from Ford.
Other manufacturers will follow suit.

I just bought a new car and got 4.34% financing. With 0% that would lower my monthly roughly from $600 to $500. I can see how that could tempt customers to buy.



While this does not lower the price of the car it lowers the profit margin.

It's pretty unprecedented to cut prices that much right?

Some cuts were over $10k?

I can't recall ever seeing that, the manufacturer's cut prices.

At some point the dealers will have to sell cars under MSRP too.

Of course Tesla raised prices a lot the past two years so you could argue that they're bringing them back down to levels more appealing to buyers. You know back when they had months or over a year of backlog?

I lucked out with this. Having signed for but not yet picked up a preowned car. Since I did not want to wait months for a new one.


After the price cut the guy from Tesla called me and said that someone recently cancelled their order for a brand new identical model and I could get that one for a slight increase in price. And with no extra delay since the cancellation meant I jumped the long waiting list. I happily accepted!

It is exactly because Tesla has a bigger profit margin than other car makers that its stock has been valued so highly. The price cut definitely reduces that profit, and the stock has to be repriced to reflect it.

What is interesting to watch to unfold is whether this repricing has been complete or will continue.

This is indeed the most interesting part. If Tesla is telling the truth they lowered prices because of supply prices coming down. And because of additional savings with two new factories scaling up production.


So the margins may not take that much of a hit. It will be interesting when they release their quarterly earnings reports this year.