Elon Musk is taking a page out of
Henry Ford’s playbook.
Christian Marquard/Getty Images
- “This has all happened before,” Ford CEO Jim Farley said.
- Musk’s price cutting strategy is similar to what Henry Ford did in 1913.
- Farley warns Musk about keeping products fresh.
Ford Chief Executive Jim Farley says Elon Musk’s price war strategy for electric vehicles isn’t anything new.
Farley told reporters last week that Musk’s idea to slash prices and protect volume over profit margins is a play right out of Henry Ford’s Model T playbook.
“Go read ‘1913,’” Farley said, referring to a book that features a close look at the year Ford became a mass-producer of vehicles. “This has all happened before.”
The strategies are strikingly similar.
In 1913, when Henry Ford first started using a conveyer belt on his assembly line, he began slashing the price of the Model T to boost sales as the company was able to build more vehicles in a shorter period of time.
Since the start of 2023, Musk has lowered the prices of the most popular Tesla models half a dozen times as the company aims to build 2 million vehicles this year, doubling 2022 production. The price cutting strategy has had an adverse effect on Tesla’s profit margins, spooking some investors, but Musk has insisted he knows what he’s doing.
“We do believe we’re, like, laying the groundwork here, and that it’s better to ship a large number of cars at a lower margin, and, subsequently, harvest that margin in the future as we perfect autonomy,” Musk told investors on a quarterly earnings call earlier this month.
Farley’s advice for Musk
Using Ford’s history as a guide, Farley had some warnings for Musk.
“I think what he’s going to learn is product freshness means a lot,” Farley said. “The product gets commoditized and then you lose your pricing premium. That’s a really dangerous thing.”
Ford’s founder eventually learned that lesson, Farley said, introducing different colors and the Model A. But by then, Chevrolet had taken over as the top car brand in the US.
Musk has been under pressure to refresh the Tesla fleet, a move he has long avoided by instead introducing newer models and pushing flashy software updates to keep the Tesla driving experience fresh.
With a rumored Model 3 update floating around on the internet, analysts and investors have said that updates to the Model 3 and Model Y this year will be key to keeping sales momentum going throughout the year.
