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GM, Ford prepare for economic slowdown as gas prices weigh on auto industry

Yahoo Finance Live anchors discuss EV company Tesla raising prices on its models as well as how GM and Ford are preparing for the economic slowdown.

Video Transcript

[MUSIC PLAYING]

- Welcome back. Shares of Tesla under some pressure here this morning, getting swept up in the broader market sell off. But this comes despite Tesla unveiling some new price hikes across the board for its US models.

And guys, really, this is the latest round of price hikes from this company. They have come out very aggressive this year, just to try, I guess, to get out in front of the inflation.

- Yeah, and most notably, I think this is going to come in across the lines that they have. And you're seeing there the Model X, the S. Of course, the X having the largest price hike at $6,000.

But particularly zeroing in on the Model Y Long Range and the Model Y Performance, as well as the Model 3 because that's where the bulk of the production and deliveries take place for this company.

In the first quarter, they had 310,000 deliveries, 295,000 of those deliveries being across the 3 and the Y. And everybody is looking for more range, especially in the early adopters right now of the EV landscape.

And that's really pushing some of the consumers that buy into it to actually opt up into one of those higher categories too so that they can ensure, all right, if I'm in an area where I might have to go for quite some time before I see a supercharger station, that I've got enough range to get me there.

And I think that's where this company sees a ton of its margins. And once again, it does come back to materials and how their supply chain is being navigated in this point in time too.

- Yeah, and our Pras Subramanian, who covers autos, making an interesting point for us, which is that some of the early chatter, sort of consumer chatter, on the newest Model Y is not very positive, that people are not very happy with the attention to craftsmanship that is being exhibited in their new Model Ys.

Something else I wanted to point out is that, as we look at this high gasoline price cycle, sometimes you get this conventional wisdom that it's going to push people into buying electric vehicles. That makes sense, right? People want more gas efficiency.

But when you're talking about a Model Y that is priced at above $60,000, that is not something most people are going to be switching out for. Right? That is not going to foster widespread electric vehicle adoption. Even the lower priced cars from Tesla are still above average in terms of cars.

And by the way, Jefferies is out today cutting its global electric vehicle sales estimates for this year and next year as the market is recovering. So it's interesting, in this environment, to see that kind of a call.

- No, you made a good point on quality because I mean, I've ridden Teslas, more so recently too. And I've just been disappointed in the quality of these cars. People are buying them for the range, I suppose for the software, the interface.

- The cool factor.

- The cool effect. But if you drill down, the quality is not there. And especially now, you have new electric models out of Ford, Mercedes too. There's a noticeable difference in quality.

And now, I'm not a car reviewer, but I bring this up because here you have Tesla trying to push through price increase after price increase. And at some point, if they don't pick up the quality, these consumers are going to say I'm not buying this car. If I want to pay more for an EV, I'm just going to go to Mercedes.

- And one more point as well, NHTSA, the National Highway Traffic Safety Administration, out yesterday with an autopilot report, or maybe it was two days ago now, where they talked about Tesla, its autopilot being responsible for a decent number of crashes. So that's something, too, that's sort of hovering in the background when we talk about these companies.

- And more than were reported previously, or known to be disclosed, which is something, especially when these regulatory bodies do the investigations, they perform their reviews, that also impacts the public perception of the number of people that, especially for all of the safety that Tesla tries to go out to the market with.

Safer than a Volvo, faster than a Porsche, I think is what they were going out with a couple of years back. That takes a direct hit on that perception. And then you start to get into the conversation of does somebody opt into a Mercedes EQ later on, especially if prices are this high.

- They're still ugly. Maybe something else.

- So let's talk about the traditional automakers as well. Shares of General Motors and Ford, they're both down this morning as well. Representatives from both of those companies said at conferences that they're preparing for an economic slowdown, not surprising. Gas prices continue to rise. The auto industry is bracing itself for the worst case scenario moving forward.

This is something we've heard from a lot of executives, not just in the auto industry. And I think, as we've talked about, it's just good management to prepare for the worst, even if the worst does not materialize.

But when you talk about the past couple of years that we've already seen for the car industry, rising costs, now rising gasoline prices, how that's going to feed through to buying decisions, it's a tough time for them.

- We talked about yesterday, and you brought it up, Brad, the stories of these two companies are different, GM and Ford. Ford, I would say, has gotten out in front of a potential slowdown. That doesn't say that they couldn't have more cuts. They're going to need to do. But in terms of splitting that business in half and just looking at it more rationally.

And then you have GM and the other side, that's trying to just launch electric car after electric car with seemingly no focus on controlling costs. And the market is not going to reward that type of stock in this environment.

- And within that restructuring too, within Ford and how they're kind of breaking out those divisions, what's interesting for both of these companies is they're going to be looking across headcount to understand exactly where most of the resources are prioritized.

And is it prioritizing the internal combustion engine side of the business or how much of that do they need to roll over to where they've already made major investments in the EV or AV side of the business and the autonomous vehicles business, which it'll be interesting to see how much longer they can hold on to cruise automation under the GM business without facing even more cost.

- What I think GM doesn't understand, sure, you can come out with 35 electric cars by 2025. Somebody still has to buy them. And if we are experiencing economic slowdown and rates are still high, these cars are going to sit on lots, nobody's buying them.

- One more note, by the way, when it comes to Ford, remember two days ago, they just issued a big recall for their Mustang Mach-E. 49,000 of those cars were recalled. So you know, that doesn't help matters either.

- No, not at all.