EV Startups are Under Pressure Due to Tesla's Price Cuts

Rivian and Lucid, two money-losing EV startups, are struggling to gain market share due to Tesla's "price war."

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Tesla took several years to become profitable, but electric vehicles are becoming more popular with consumers. In light of the automaker's latest price cuts, analysts warn that struggling EV startups may be forced into difficult positions. 

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As a result of Tesla's price cuts, money-losing EV startups have been having a harder time securing market share, according to Trade Algo. Analysts believe Tesla's price cuts could attract new consumers away from more expensive models, as the cars have been marked down by as much as 20 percent.

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Other automakers have a choice to either respond by lowering their own prices or risk being left behind, say analysts and investors. Over 1.3 million Tesla cars will be delivered in 2022, while other, smaller automakers struggle to produce nearly as many. Tesla is the dominant player in the emerging EV market.

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According to Trade Algo analysts, Tesla's price cuts will improve its competitive position.

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The combined shipment of 24,000 vehicles by Rivian and Lucid last year is just over 24,000, and neither company has turned a profit yet. According to Rivian's fourth quarter cost of goods, the company's revenue was roughly 2.7 times its cost of goods, while Lucid was roughly 2.5 times the revenue.

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Although funding has been raised for both companies, there is enough runway for production over the next year. It was already unclear whether Tesla's recent price cuts would keep operations afloat through 2023 for smaller carmakers such as Faraday Future and Arrival in the UK.

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Several companies may be on the verge of extinction, according to Trade Algo analysts.

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As a result, EV startups face dire options if they don't achieve their financial targets over the next 12-18 months as if they were in a ‘Game of Thrones battle’. The odds of consolidation or worse are likely for some losers over the coming years.

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Lucid was founded by former Tesla executive Peter Rawlinson, and no mass-market rivals have been announced yet. Tesla's most affordable cars start at $107,400, while its most affordable models are currently priced at roughly $44,000 and $53,000. Instead of focusing on a mass market, the company is aiming for luxury markets.