What happened
All across the electric vehicle industry, share prices are sliding on Tuesday, and there's just one reason: Tesla (TSLA 12.06%).
At 11:30 a.m. ET, shares of luxury electric-car makers Nio (NIO 3.49%) and Lucid Group (LCID 1.19%) are down 3.3% and 4.5%, respectively, while Nikola Corporation (NKLA -2.41%), a potential competitor to Tesla in electric long-haul tractor-trailer trucks, skidded 3.4% lower.
So what
What do these three stocks have in common? Broadly speaking, they're all EV stocks, and as such, when these companies are driving down the road of commerce, they all have to keep one eye on what Tesla is doing. With plans to grow its production of electric vehicles 37% this year, to 1.8 million EVs, you see, Tesla is the proverbial 800-lb. gorilla of the EV industry -- and right now, it seems intent on throwing its weight around.
Specifically, as The Wall Street Journal reported in its hard-copy edition this morning, Tesla has announced yet another round of price cuts on its automobiles. More specifically, it's cutting prices on Model S luxury electric sedans by $5,000 and on its Model X electric SUV by $10,000. Combined with other price cuts already announced, this is sparking a price war in EVs, with Lucid announcing special "EV credits" (temporary, targeted price cuts) last month and Nio reportedly offering discounts on some EV models too.
So far, there hasn't been word of any price cuts at Nikola, which doesn't yet compete with Tesla -- but it might soon have to now that Tesla Semi deliveries have begun.
Now what
So what does the future hold for these three companies as Tesla throws its weight around, cutting prices and undercutting the competition? I'm afraid the news might not be good.
According to the latest data from S&P Global Market Intelligence, Tesla boasts a war chest of more than $22 billion, and it's generating positive free cash flow at the rate of $7.5 billion more dollars every year. In contrast, both Nio and Lucid were burning cash at last report, and their balance sheets look significantly weaker than Tesla's -- $5.6 billion in cash for Nio and just $3.9 billion for Lucid.
Of the three, Nikola's position is the most tenuous. With less than $240 million in cash to its name, Nikola is burning through roughly $750 million per year, and it will be out of cash again in just a few months. Even if it wanted to cut prices to compete with Tesla and its Semi, I'm not sure it would be able to do so and still remain solvent.
Long story short, investors in competing EV stocks are nervous about the price war that Tesla has just declared. And they're right to be.
