Ex-Ford CEO Explains How Elon Musk's Tesla Cudgels Competition

"How low can you go?" asks Mark Fields.

Mark Fields, the former Ford  (F) - Get Free Report CEO, had some thoughts to share about Elon Musk and Tesla  (TSLA) - Get Free Report on CNBC April 20.

During a Squawk Box segment, Fields explained his belief that Tesla seems to be focused more on growth than on maximizing profits in the near term.

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Fields discussed Tesla's earnings call from April 19.

"You saw from Musk’s comments yesterday, they're going to sacrifice profits for growth," he said. "And I think the way they're looking at it is with the the market growing for EV's pretty steadily right now, combined with the federal incentives, it's a bit of a land grab and he wants to expand his number of vehicles in the market before a number of competitors come in. Because there are advantages to having a larger what they call a car park -- whether it's more parts and service business, or you can sell more software features down the road, or ultimately if they ever get to autonomy."

He addressed the way Tesla has been cutting the prices it charges for its electric vehicles.

"So he's using pricing as a cudgel against the competition and you know he's doing it because he has positive margins on EVs versus the competition, which may not," Fields said.

Fields described how he heard more concerning news on Tesla's earnings call than good.

"I think there were a lot more worrying things coming out of this call than positives," he said. "I mean, obviously revenue was up about 24% to 25% versus last year, but was below their long-term objective about 50%. Profits were down, margins are down, inventories up, plant utilization is below where it needs to be, and negative cash flow, as well as input costs, are up."

Fields returned to the subject of the cost of Tesla's EVs.

"So you look at that, you go hey, when you look at pricing and using pricing to grow demand, you've got to ask yourself a question: 'How low can you go?'" he said.

"Alternatively, you know they do know advertising," Fields added. "So that's a way to stoke demand. And I'm sure there are debates inside Tesla right now whether they should do advertising versus continuing to cut prices and reduce margins."

In Tesla's call April 19, Musk said the company's Cybertruck would be delivered in the third quarter of 2023 and he called the new vehicle a "hall of famer." 

Regarding the Cybertruck, we continue to build Alpha versions of the Cybertruck on our pilot line for testing purposes. It's a great product, and we're completing the installation of the volume production line at Giga, Texas, and we're anticipating having a delivery event, a great delivery event, probably in Q3.

As with all new products, it will follow an S curve, so production starts out slow and then accelerates. So the Cybertruck is no different. So it's -- there's an amount of demand for the product, obviously. And it is my view, a fantastic product, a hall of famer. But as with all new products, it takes time to get the manufacturing line going. And this is really a very radical product. It's not made in the way that other cars are made.

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