Elon Musk, the CEO of Tesla, hinted on Wednesday that he will lower costs once more for electric vehicles in “turbulent times,” despite the fact that his company’s profits are being squeezed by his fierce price battle with competing automakers.
Since late last year, the company has reduced prices multiple times in the US, China, and other places. It has also expanded discounts and other incentives to get customers to buy less and reduce inventory as a defense against rivalry and an uncertain economy.
“The international economy appears to be collapsing one day, then appears to be in good shape the next. During a conference call with analysts, Musk said, “I don’t know what the hell is going on. “I would describe the current period as turbulent.”
The significant price reductions have put pressure on Tesla’s automotive gross margin, a frequently watched industry metric, but Musk has stated that Tesla is willing to sacrifice margin in order to increase volume.
He reiterated this on Wednesday, saying, “I think it makes it does make sense to sacrifice margins in favor of making more vehicles,” and that Tesla would have to decrease pricing if the macroeconomic environment deteriorated more.
For instance, Tesla last year reduced the price of its long-range Model Y model in the United States by 25% to $50,490.
According to calculations by Reuters, Tesla’s quarterly automotive gross margin, excluding regulatory allowances, decreased from 19% in the first quarter to 18.1% in the second quarter. Although consistent with street expectations, that was a sharp decline from the 26% it reported a year earlier.
For the months of April through June, Tesla reported its lowest gross margin in 16 quarters at 18.2%.
Tesla had stated in a statement that it was concentrating on cost-cutting and the development of new products, and that the “challenges of these uncertain times are not over.”
After constructing its electric vehicle castle, Tesla is now in a strong position and ready to further monetize its success, according to a report from Wedbush analysts.
Tesla reaffirmed its goal of delivering about 1.8 million cars this year, but acknowledged that the third quarter’s output will be somewhat lower owing to scheduled downtimes for facility upgrades.
Thomas Martin, the portfolio manager of Globalt Investments, which owns Tesla stock, said: “It’s a delicate line.
They want to run their factories as effectively as possible because they don’t want to accumulate stocks. “They are trying to get the prices right so they can generate the demand for the units.”
Lower prices and government tax benefits for EV consumers in the US and other countries helped Tesla deliver a record 466,000 units from April to July worldwide, but at the expense of its profitability.
Yet, on an adjusted basis, Tesla made 91 cents per share thanks to non-core income and $24.93 billion in essentially in line revenue. Refinitiv reports that analysts had predicted a profit of 82 cents per share.
Musk did not identify the firm on the call, but stated that Tesla was in discussions to license its “full self driving” (FSD) software with a significant original equipment manufacturer. He had previously stated that the business was willing to license the driver-assistance technology.
Following a number of crashes involving its vehicles, Tesla is under regulatory security. FSD does not make the automobile autonomous and still requires driver supervision.
The most valuable automaker in the world would be “worth basically zero” without having full self-driving capability, according to Musk’s prediction from a year ago.
After Ford Motor (NYSE:), General Motors (NYSE:), and a host of other automakers and EV charging companies said they would adopt Tesla’s charging technology this year, Tesla’s stock experienced a significant increase.
Since the first such transaction on May 25, the company’s shares has increased by 60%. It has increased by 138% so far this year, driven in part by extended tax incentives for Model 3s and the excitement surrounding artificial intelligence among investors.
The business reported on Wednesday that while decreased costs for raw materials and government tax credits helped to lower cost per car, operating expenses increased as a result of Cybertruck, AI projects, and the ramp-up of 4680 battery cells, which are essential for producing more affordable and appealing EVs.
According to Tesla, the second quarter saw tax credits around $150 million to $250 million as well as equivalent gains from cheaper prices for raw materials like lithium and aluminum.
On Wednesday, Tesla announced that it had increased production in Texas by 80% over the previous quarter and had achieved “notable progress” in improving the yield of its 4680 cell production lines.
Musk presented a proposal to manufacture “4680” cells, which will be used in Tesla’s own EV batteries, in 2020. However, the automaker has had trouble achieving Musk’s goals for cell output and performance.
Cybertruck, a long-delayed electric pickup truck, is still expected to begin deliveries this year, according to Tesla.
