This chart shows how Tesla can keep cutting prices and stay ahead of the competition

A Model S car pictured in a Tesla store in Europe. Soeren Stache/picture alliance via Getty Images

Tesla keeps lowering the price of its cars.
It’s taken a margin hit, but its input costs are going down too. 
The price cuts have helped Tesla stay ahead of the competition. 

Tesla’s price war sent shock waves through the industry, and the fallout is far from over.

Still, Elon Musk’s electric automaker is lapping the competition as old-guard automakers like Ford and General Motors switch to electric vehicles.

That’s in large part thanks to tremendous cost savings found in manufacturing.

The average cost of building a Tesla in the fourth quarter fell once again, according to the company’s earnings report released Wednesday.

On average, Tesla spent just over $36,000 per vehicle it sold in the October to December period, down from over $37,000 per vehicle in the same quarter in 2023.

A chart from Tesla’s Q4 earnings deck shows the cost of goods per vehicle sold steadily decreasing.Tesla

At the same time, Tesla has been selling its vehicles for cheaper, showing Tesla’s might over its competitors when it comes to EV pricing.

Tesla has always had a lot of room to run on pricing, given its industry-leading profit margins. But Elon Musk’s strategy to slash prices has chipped away at its once-40% gross margins, bringing them down to 17.6% in the fourth quarter.

Still, that’s far above the industry average of around 9%.

While Tesla continues to play with prices, other automotive CEOs have warned against the practice. Stellantis CEO Carlos Tavares said last week he was keen to stay out of any EV price wars, but stopped short of mentioning Tesla by name.

“If you go and cut pricing disregarding the reality of your costs, you will have a bloodbath. I am trying to avoid a race to the bottom,” he said.

Last year, Ford CEO Jim Farley compared Musk’s strategy to that of Henry Ford.

“I think what he’s going to learn is product freshness means a lot,” Farley said of Musk at the time. “The product gets commoditized and then you lose your pricing premium. That’s a really dangerous thing.”