Tesla margins slip on price war, Musk warns of ‘turbulent times’
TESLA on Wednesday (Jul 19) reported quarterly automotive gross margin in line with Wall Street estimates, though it was a far cry from a year earlier and before CEO Elon Musk ignited an electric-vehicle (EV) price war to quash competition.
Under pressure from increasing competition and an uncertain economy, Tesla has slashed prices several times in the United States, China and other markets since late last year, and increased discounts and other incentives to reduce inventory.
Tesla said in a statement on Wednesday it was focusing on reducing costs and on new product development, and that the “challenges of these uncertain times are not over”.
“One day it seems like the world economy is falling apart, next day it’s fine. I don’t know what the hell is going on,” Musk told analysts on a conference call. “We’re in, I would call it, turbulent times.”
Tesla shares, which had been largely flat after hours, fell 2.6 per cent after Musk’s comments.
The large price cuts have pressured Tesla’s industry-leading automotive gross margin, a closely watched indicator, but Musk has said Tesla would sacrifice margin to drive volume growth. For instance, Tesla this year cut prices of its Model Y long-range version by a quarter to US$50,490.
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Automotive gross margin, excluding regulatory credits, fell to 18.1 per cent in the second quarter from 19 per cent in the first quarter, according to Reuters’ calculation. A year earlier it was 26 per cent.
Tesla reported overall gross margin of 18.2 per cent for the April-June period – the lowest in 16 quarters – compared with 19.3 per cent for the first quarter.
The company also handily beat quarterly profit estimates on the strength of non-core income and largely in line revenue.
“Multiple rounds of aggressive price cuts has put Tesla in a position of strength after building its EV castle and now is set to further monetise its success,” Wedbush analysts said in a note.
Tesla reiterated its expectations of achieving deliveries of around 1.8 million vehicles this year, but said production in the third quarter would decrease slightly due to planned downtimes for factory upgrades.
Recently, a lack of new models has made it tougher for Tesla to take on rivals in China, where glitzier offerings from local players have weighed on demand.
Lower pricing, along with government tax breaks for EV buyers in the United States and elsewhere, drove Tesla’s deliveries to a record 466,000 vehicles in the April-July period globally, but ate in to its profitability.
Still, on an adjusted basis, Tesla earned 91 US cents per share. Analysts had expected a profit of 82 US cents per share, according to Refinitiv.
The company reported revenue in the April-June period of US$24.93 billion, compared with estimates of US$24.48 billion, according to Refinitiv data.
FSD licence
Musk said on the call that Tesla was in talks with a major original equipment manufacturer to licence its “full self-driving” (FSD) software but did not name the company. He had previously said the company was open to licensing the driver-assistance system.
FSD does not make the car autonomous and requires driver supervision, and Tesla is under regulatory security following a number of crashes involving its vehicles.
Last year, Musk said the world’s most valuable car maker would be “worth basically zero” without achieving full self-driving capability.
Tesla’s stock received a big boost this year after Ford Motor, General Motors and a raft of other automakers and EV charging firms said they would adopt Tesla’s charging technology.
The company’s stock has risen 60 per cent since the first such deal with Ford on May 25. So far this year it is up 138 per cent, helped also by expanded federal credits for Model 3s and investor excitement over artificial intelligence.
The company said on Wednesday that lower raw-material costs and government tax credits helped reduce cost-per-vehicle but that it saw an increase in operating expenses driven by Cybertruck, AI projects, as well as the production ramp of 4680 battery cells that are key to making cheaper and compelling EVs.
The company benefited from US$150 million to US$250 million in tax credits in the second quarter, it said.
Tesla said production of the long-delayed electric pickup Cybertruck remained on track for initial deliveries this year.
Tesla said on Wednesday it had made “notable progress” on yield improvement of its 4680 cell production lines and increased production in Texas by 80 per cent in the second quarter from the first.
In 2020, Musk unveiled a plan to produce Tesla’s own EV batteries called “4680” cells. But the carmaker has struggled to meet Musk’s targets for production and performance of the cells. REUTERS
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