Elon Musk blames supply chain hurdles for Tesla price rise

The supply chain disruptions of components in the auto industry have led to an increase in the prices of vehicles, claimed Elon Musk in a tweet reply to a query.

“Prices increasing due to major supply chain price pressure industry-wide. Raw materials especially,” Musk said in a tweet. Chip shortages are a major cause of the production delays for the auto industry along with the tech devices manufacturers.

He was responding to an unverified Twitter account called @Ryanth3nerd, which said, “I really don’t like the direction @tesla is going raising prices of vehicles but removing features like lumbar for the Model Y…”

Tesla CEO Elon Musk Chip Shortages Production

Tesla CEO and SpaceX Founder Elon Musk

May saw Tesla Model 3 and Model Y prices go up. This was the fifth price rise of Tesla models in the last few months. From February to May, Tesla has seen regular revision in the prices of its models.

According to a news report in Elektra, a missing part for Model 3 and Model Y vehicles had put between 10,000 and 20,000 vehicles on hold.

During an earnings call last month, Musk said Tesla had experienced “some of the most difficult supply chain challenges,” citing a chip shortage. “We’re mostly out of that particular problem,” he had reassured.

There were also reports that Tesla removed lumbar support on the front seat for its Model Y as the company believed it was not of much use and added to the cost.

Another reason given by industry observers for the price increase is that the automaker could also simply be taking advantage of higher demand. People believe that Tesla is gradually increasing the prices of the cheapest Model 3 and Model Y in anticipation of a new EV rebate in the US.

Model 3 Standard Range Plus, Tesla’s cheapest vehicle, has now increased in price from $37,000 in February to $40,000 – a more than 8% increase in price. The Long Range AWD version has gone up from a low of $46,490 in March to see an increase of $2,500 more on its price. Tesla Model Y Long Range AWD price went from $51,490 to $51,99.

The semiconductor shortage is expected to cost the global automotive industry $110 billion in 2021.

The chips in auto industry are used in drivers assistance features, for fuel economy and computer management of engines. No car is complete without these chips to operate the value addition peripherals in cars.

The shortage of chips has hurt vehicle production at carmakers, including General Motors Co, Volkswagen AG and Ford Motor Co. Ford and GM have cut their earnings expectations by billions of dollars.

“The global supply chain for semiconductors as well as for other components remains very unstable and the uncertainty . . . is high,” said Volvo Group chief executive Martin Lundstedt. Volvo’s Renault’s first-quarter sales were hit by the chip shortage. The group is concentrating on its most profitable vehicles in key markets outside Europe, such as the Kiger SUV in India and the Dacia Duster in Russia.

Currency fluctuations have exacerbated the situation. The industry is facing “headwinds” from supply chain bottlenecks, raw material costs and part shortages that is affecting the manufacturers further.

Automaker Stellantis has gone so far as to replace digital speedometers with more old-fashioned analogue ones in one of its Peugeot models due to the shortage of semiconductor chips.

According to research by IHS Markit, around 670,000 fewer cars will be produced in the first quarter of the year as a result of the shortages. The report further says that the supply bottleneck may last till the second half of 2021.

Christy Gren
Christy Gren is an Industry Specialist Reporter at Industry Leaders Magazine she enjoys writing about Unicorns, Silicon Valley, Startups, Business Leaders and Innovators. Her articles provide an insight about the Power Players in the field of Technology, Auto, Manufacturing, and F&B.

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