Life Science: Elon Musk Squeezes His Electric-Vehicle Competitors.

"Is Elon Musk trying to drive U.S. automakers out of business? That's a reasonable conclusion from Tesla's recent price cuts, which will force competitors to sell electric vehicles at huge losses to compete. Yet if American automakers fail, they will have only the United Auto Workers and the Biden administration's electric-vehicle mandate to blame.

When Mr. Musk launched Tesla in 2003, it was the only serious electric-vehicle manufacturer on the block. Twenty years later, the company faces competition from traditional automakers as well as startups such as Rivian, Lucid, Fisker and Nikola.

Tesla rose to prominence by manufacturing sleek sports cars that appealed to the affluent. More recently, Mr. Musk has been trying to broaden the company's customer base by slashing prices on its Model 3 sedan -- base price $40,240 -- and debuting a "cybertruck," which looks like a mutant child of a pickup and an SUV.

"We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin," Mr. Musk said during an April earnings call. But the CEO isn't merely trying to boost sales amid flagging demand. He's trying to drive his competitors off the road.

The Inflation Reduction Act includes truckloads of subsidies for electric vehicles, including tax credits for battery makers and consumers. But despite these handouts, traditional automakers still don't expect to turn a profit on the cars for several years. Ford recently forecast its electric-vehicle division would lose $3 billion this year and committed to getting in the black in 2026.

In the first three months of this year, Ford's electric vehicles posted a negative 102% operating margin -- that is, its losses on electric-vehicles exceeded its sales. Yikes. Ford blamed a battery problem in its much-hyped F-150 Lightning pickup for interrupting production. Even if it weren't for that, Ford still would have posted a huge loss.

Ford's strategy to reach profitability is the same as every other automaker's: Shave costs by scaling up manufacturing. This is how Tesla finally turned a profit in 2020 after running losses for more than a decade. The company spent years in what Mr. Musk dubbed "production hell," ironing out kinks in engineering and manufacturing.

Tesla may have survived thanks to the Federal Reserve's decade of near-zero interest rates, which made it cheap to borrow and easier to raise capital despite its junk credit rating. It also raked in billions from selling credits to other automakers needing to meet government emissions mandates.

Traditional automakers won't benefit from these monetary and regulatory subsidies. Instead, they will have to use profits from gasoline-powered pickups and SUVs to subsidize their cash-guzzling electric vehicles. But this will become unsustainable as the Biden administration's emissions regulations require automakers to ratchet up electric vehicles to 17% of sales in 2026 and two-thirds by 2032. (About 3% of Ford's U.S. sales last year were electric vehicles.)

Automakers don't receive regulatory credit for making electric vehicles unless Americans actually buy them. So by slashing Tesla's prices, Mr. Musk is trying to force traditional automakers to do the same to compete. If they don't, their electric vehicles may languish on dealer lots, requiring automakers to record even bigger losses and buy even more regulatory credits from Tesla.

But General Motors, Ford and Stellantis (which owns Chrysler), in particular, will face another drag on profits: the UAW. Mr. Musk has resisted unionization at Tesla factories, no doubt aware that the UAW's inefficiency and high labor costs helped drive Detroit automakers bankrupt in 2009.

Automakers and the UAW are preparing to begin collective-bargaining over a new national labor agreement this summer. UAW leaders have made clear their goal is to increase wages and benefits at new electric-vehicle battery plants, where workers currently earn about half as much as their counterparts at other factories. They also want to ensure jobs aren't lost in the electric-vehicle "transition."

Stellantis recently announced it would offer buyouts to 31,000 hourly employees. Ford last year announced it was laying off 3,000 white-collar and contract employees to finance its electric-vehicle expansion. 

Automakers will almost certainly have to issue more pink slips, if only because manufacturing electric vehicles requires significantly less labor than gasoline-powered cars.

The UAW knows this, which is why it's soliciting the Biden administration's support in negotiations. "The federal government is pouring billions into the electric vehicle transition, with no strings attached and no commitment to workers," UAW President Shawn Fain wrote to his members on May 2. "The EV transition is at serious risk of becoming a race to the bottom."

Mr. Fain is threatening to withhold the union's endorsement of Mr. Biden unless his administration backs a "just transition" to electric vehicles. Translation: The union wants the White House to wield subsidies and regulation as a cudgel to drive its labor agenda. But all this will do is render automakers less competitive in a race in which they're starting laps behind Tesla.

The risk isn't merely that U.S. automakers can't catch up; it's that they could crash right out of the gate." [1]

Mr. Musk is running an IT company, a Silicon Valley startup Tesla. Other U.S. automakers are running huge early XX century behemoths pretending that they are IT companies too. Good luck with that.

1. Life Science: Elon Musk Squeezes His Electric-Vehicle Competitors. Finley, Allysia. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 15 May 2023: A.17.