[NEWS ANALYSIS] Tesla’s EV pricing war puts pressure on Hyundai Motor, Kia

An EV pricing war spurred by Tesla is putting pressure on Hyundai Motor and Kia, which were already reeling from the Inflation Reduction Act (IRA).

The Korean automakers are focusing on the lease-related business under the IRA as a major breakthrough to grab more shares in the U.S. market.

Ford Motor said Monday it cut prices of its electric SUV Mustang Mach-E by between 1.2 and 8.8 percent depending on the version.

This means a Mach-E could be purchased with a discount of up to $5,900, though this only applies to North American prices.

The Detroit-based carmaker’s latest decision comes a few weeks after Tesla slashed the prices of its vehicles by up to 20 percent, with the biggest discount going to its Model Y. Model Y is considered the Tesla rival of Ford’s Mustang Mach-E in the SUV market.

The sticker price of a long-range Model Y now starts at $52,990 from the previous $65,990, making it eligible for an EV tax cut under the IRA.

To get the maximum $7,500 incentive, sedans must cost less than $55,000 and should be assembled in North America. EVs from Hyundai Motor and Kia are not qualified for the subsidy — at least, not until 2025 — since they are currently manufactured only in Korea.

The price of Tesla’s Model 3 fell 6.4 percent to $43,990.

“Tesla’s dramatic price cut is fueling the price competition among global automakers, which will eventually threaten Hyundai Motor and Kia in the U.S. market,” said Kim Pil-soo, an automotive engineering professor at Daelim University.

“Ford’s 8-percent price cut is also very shocking. I believe they decided to tolerate the losses to maintain their market share,” Kim added. “This is a very serious situation since Hyundai and Kia cars are not even eligible for the tax credit since the passage of the IRA.”

Tesla achieved an operating margin of around 16.8 percent in 2022, and Hyundai’s stood at 6.9 percent.

With the price cut, Tesla’s Model 3 is already $1,510 cheaper than Hyundai’s long-range Ioniq 5, which can run up to 303 miles per single charge based on the Environmental Protection Agency (EPA).

When the tax incentives are applied, the gap increases to $9,010. The Ioniq 5 is even pricier than Ford’s Mach-E.

Kia’s EV6 will be $12,210 more than the Model 3.

Tesla, in fact, has seen a surge in orders since the price cut.

“Thus far in January, we’ve seen the strongest orders year-to-date than ever in our history,” Elon Musk said during a conference call announcing its earnings report in December.

“We’re currently seeing orders at almost twice the rate of production,” Musk added.

Its shares skyrocketed almost 25 percent within two days after Musk’s comment.

“Tesla’s latest aggressive price cut implies it will maintain its share and improve sales,” said Han Wei, a researcher from NH Investment and Securities. “It can be seen as an attempt to attract customers who are waiting for their delivery by pressuring rivals and triggering price competition.”

Hyundai Motor, however, currently has no plan to reduce the prices of any of its cars and instead plans to strengthen its lease programs.

“Now, only 5 percent of EVs are sold through lease programs in the United States,” Seo Gang-hyun, executive vice president of finance and accounting at Hyundai Motor, said during an online conference call last week.

“We would like to increase that to more than 30 percent.”

Hyundai’s focus on these lease programs comes as the United States has the biggest auto lease market in the world. Of all vehicles sold in the United States in the second half of last year, around 30 percent were leased cars.

Leased EVs also qualify for the IRA tax credit, even if they were not assembled in North America.

Analysts, however, remain skeptical about Hyundai’s plan.

“The United States has a big lease market, but the size has been on the decline recently due to various economic situations such as high-interest rates,” said Prof. Kim.

“It will be not easy for Hyundai to maintain their share just by expanding the lease programs,” Kim added. “They will inevitably have to consider price cuts.”

The U.S. EV market has been growing quickly in recent years, with a total of 807,180 EVs sold in 2022. EVs made up 5.8 percent of the auto market last year, compared to 3.2 percent in 2021, according to data published by market tracker Motor Intelligence.

Tesla was No. 1 with 65 percent of the share in the U.S. EV market, down from 72 percent the previous year.

The No. 2 place, which had been held by Hyundai and Kia until the first half of last year, was taken by Ford in annual overall sales. Ford held 7.6 percent.

The combined share of Hyundai and Kia stood at 7.1 percent, the third largest EV makers in the United States.

BY SARAH CHEA [chea.sarah@joongang.co.kr]