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With Growing Concerns About Demand, Tesla Joins GM And Ford In Halting The EV Factory Ramping Up


With Growing Concerns About Demand, Tesla Joins GM And Ford In Halting The EV Factory Ramping Up
Due to economic uncertainty and concerns about a potential slowdown in demand, Tesla has joined General Motors and Ford in exercising caution when it comes to increasing the capacity for producing electric vehicles (EVs).
Elon Musk, the CEO of Tesla, expressed concern that increased financing rates would make it impossible for prospective buyers to purchase the company's cars even in the face of significant price reductions. He said he would wait for economic clarity before expanding the company's intended facility in Mexico.
"People hesitate to buy a new car if there's uncertainty in the economy," Musk said on a post-earnings call where he also talked about "paycheck-to-paycheck" pressures on American workers. "I don't want to be going into top speed into uncertainty."
Musk's remarks followed alerts from EV startups and other automakers. Along with shares of other EV manufacturers, it caused a 7% decline in Tesla shares during premarket trading on Thursday.
Citing a flattened market for EVs, General Motors (GM) announced on Tuesday that it would postpone manufacture of the electric pickup trucks, the Chevrolet Silverado and GMC Sierra, by a year at a Michigan factory.
Ford, a Detroit rival, announced last week that it will temporarily eliminate one of the three shifts at the facility where its electric F-150 Lightning pickup truck is produced. The carmaker reduced its EV ramp-up in July in favour of hybrids and commercial cars.
EV companies Rivian and Lucid both had losses of more than 2% in premarket trading on Thursday.
Concerns regarding the demand for its Air luxury vehicle were raised when Lucid revealed on Tuesday that third-quarter production had dropped by almost 30% and that deliveries had only slightly increased despite significant discounts.
This month, Rivian, a manufacturer of electric sport utility vehicles and pickup trucks, let down investors by not increasing its full-year production forecast in spite of better-than-expected third-quarter results.
"It does highlight that there could be a slowdown in EV (demand) in the near term," said Tom Narayan, global autos analyst at RBC Capital Markets. "But it has more to do with pricing and affordability than a rejection of EVs."
According to Narayan, this is just a "dip" that will get better as EV prices drop and more affordable models become available.
Automakers' EV-related investments, worth billions of dollars, are contingent upon the outcomes of the upcoming quarters. Concerns regarding a sluggish demand have been growing concurrently with enterprises realising supply chain limitations have destroyed production schedules.
In July, there were tidings that the U.S. market was not expanding quickly enough to keep unsold EVs from piling up at certain car dealerships.
Market leader Tesla, with profit margins that top the industry, has been the first and most aggressive in cutting prices to keep demand from flagging. This has forced other companies to follow suit and squeeze margins.
However, Musk claimed that in certain situations, the price reductions were nearly completely offset by higher financing costs brought on by rising interest rates intended to combat persistently high inflation, making buyers of gas-guzzling cars cautious.
"If interest rates remain high ... it's that much harder for people to buy the car. They simply can't afford it," Musk said, adding he would "accelerate" expansion of the Mexico factory if interest rates come down.
Based on current market predictions, that is not projected to happen in the US until June 2024. However, recent strong economic data suggests the central bank may decide to keep interest rates higher for a longer period of time.