What occurred

The EV worth warfare is heating up — and electrical automotive shares are happening.

This morning, luxurious EV producer Lucid Group (LCID -8.14%) introduced that for a “restricted time” it’ll give consumers of “choose configurations” of its Lucid Air electrical sedan a $7,500 EV credit score — so principally a $7,500 worth reduce on its costliest Lucid Air Touring and Air Grand Touring fashions.  

Buyers aren’t thrilled with the information. Shares of rival EV makers Lordstown Motors (RIDE -0.81%) and Canoo (GOEV -3.33%) are down 2.3% and three.8%, respectively, as of 1:05 p.m. ET. Lucid inventory itself is tumbling 8.7%.

So what

It is no nice thriller why Lucid is slashing costs. Final month, Tesla (TSLA 5.38%) reduce costs on its best-selling Mannequin 3 and Mannequin Y electrical automobiles by as a lot as 20%. A few weeks later, Ford Motor Firm (F 1.60%) adopted go well with with worth cuts as much as 8%. Over in China, EV star XPeng (XPEV 0.75%) is slicing costs, too — and now Lucid is feeling the warmth.

What distinguishes Lucid from its American rivals is that, with even its least expensive providing — the Lucid Air Pure, priced at $87,400 — the corporate at present has no fashions priced low sufficient to qualify for the $7,500 revenue tax credit score that the IRS is awarding to consumers of lower-priced EVs. So to entice consumers, Lucid is having to achieve into its personal pocket and reduce costs.

However this is the factor: When Tesla or Ford lowers costs to promote an electrical automotive for lower than $55,000, the IRS successfully cuts that worth by an extra $7,500, with taxpayers paying for the distinction. (That is the low cost that Lucid is making an attempt to match with its “EV credit score.”) However as a result of Lucid cannot get its costs low sufficient to satisfy the IRS’s threshold for a authorities credit score, each cent of its worth discount comes out of Lucid’s revenue margin, with zero subsidization from taxpayers.

Now what

Lengthy story brief, Lucid’s revenue margins are going to take an enormous hit from this transfer — and the corporate wasn’t incomes any income to start with. So actually, the principle impact of this worth reduce is that Lucid’s losses will loom giant.

As for why Lordstown and Canoo shares are happening right this moment, too, I might say that is more than likely only a knock-on impact of Lucid’s announcement. The truth that Lucid feels compelled to eat extra losses with the intention to transfer automobiles off the lot means the worth warfare in electrical automobiles that Tesla began final month is beginning to inflict casualties throughout the EV board.

How will all this finish? The robust will survive — however weak shares will dive. And we’re seeing this situation play out proper earlier than our eyes right this moment.