Tesla raises electric car prices due to supply chain pressures

Tesla CEO Elon Musk said that Tesla’s models will increase in price due to supply chain pressure on the car industry, especially raw materials.

Elon Musk attends the opening ceremony of the Model Y program in Shanghai, China on January 7, 2020. (Image: Getty Images)

In a tweet posted on June 1, Mr. Elon Musk affirmed that the reason Tesla increased car prices was due to price pressure from the supply chain across the car industry, especially raw materials. This is a reply to Twitter account @Ryanth3nerd when sharing not liking the way Tesla increased car prices but removed some features on the Model Y.

In May, Tesla increased prices of the Model 3 and Model Y models, the fifth increase in just a few months. During a phone call in April, Musk said that Tesla experienced some of its toughest supply chain challenges, including a chip crisis. Even so, the company has almost overcome the problem.

According to a study by the consulting firm AlixPartners, the loss caused by the global chip crisis to the automotive industry has exceeded 90 billion euros. Not only that, car production also plummeted. In January, AlixPartners predicted automakers will produce 2.2 million units less than planned, but according to the latest figures, the number is estimated at 4 million units. That’s because major car manufacturers such as Ford, GM, Volkswagen, Toyota, Dailmer all had to close their factories.

Stephen Dyer, managing director at AlixPartners Shanghai, says a basic car today contains 1,400 chips. This number is further increased as the industry moves towards electric, self-driving cars of the future. Therefore, the chip crisis is a serious problem for the auto industry.

The root of the chip crisis comes from the Covid-19 epidemic. Lockdowns in countries to contain Covid-19 disrupted supply chains and logistics systems that chip suppliers rely on to maintain production. At the same time, people started spending more time at home, leading to an explosion in demand for electronic devices. As a result, supply does not meet demand.

Another reason is that the US has increased sanctions on China on the grounds that chips manufactured there can have military purposes. However, due to the hyper-connected global trade network and many countries dependent on China for production, the US sanctions caused widespread supply problems.

Countries want to reduce dependence on Asia for chip production but lack the capacity to meet high demand. So, whether Covid-19 occurs or not, the heat from the US-China trade war could still lead to a chip crisis. Covid-19 only makes matters worse.

Du Lam (Synthetic)

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