Tesla may keep cutting prices in ‘turbulent times’, Musk says

Tesla may keep cutting prices in ‘turbulent times’, Musk says

Tesla CEO Elon Musk has indicated that he will further reduce prices on electric vehicles during these “turbulent times,” despite the impact on the company’s margins. Tesla has already implemented multiple price cuts in various markets to combat competition and economic uncertainty. Musk expressed his confusion about the state of the world economy, stating that it seems to be falling apart one day and fine the next. Following Musk’s comments, Tesla shares dropped nearly 5%.

The significant price reductions have put pressure on Tesla’s automotive gross margin, a key industry indicator. However, Musk has emphasized that the company is willing to sacrifice margin in order to drive volume growth. He believes it makes sense to prioritize making more vehicles over maintaining high margins, especially if macroeconomic conditions remain unstable. As an example, Tesla recently reduced the price of its Model Y long-range version in the United States by 25% to $50,490.

In the second quarter, Tesla’s quarterly automotive gross margin, excluding regulatory credits, declined to 18.1% from 19% in the first quarter. This aligns with Street estimates but is significantly lower than the 26% reported a year earlier. Overall, Tesla reported a gross margin of 18.2% for the April-June period, the lowest in 16 quarters. The company acknowledged that the challenges of these uncertain times are not yet over and is focusing on cost reduction and new product development.

Wedbush analysts noted that Tesla’s aggressive price cuts have positioned the company strongly and will contribute to further monetization of its success. Despite the price reductions, Tesla maintains its expectation of delivering approximately 1.8 million vehicles this year. However, production in the third quarter is expected to decrease slightly due to planned factory upgrades.

Thomas Martin, a portfolio manager at Globalt Investments, commented on the delicate balance Tesla is trying to achieve. The company aims to set prices that generate demand while efficiently managing factory inventories. Lower pricing, combined with government tax breaks for electric vehicle buyers, has driven Tesla’s record-breaking deliveries of 466,000 vehicles in the April-July period. However, it has also impacted profitability.

On an adjusted basis, Tesla reported earnings of 91 cents per share, largely in line with revenue of $24.93 billion. This exceeded analysts’ expectations of 82 cents per share profit. The company’s stock has experienced significant growth this year, rising 60% since the first deal with other automakers and EV charging firms to adopt Tesla’s charging technology. Tesla attributes this growth to lower raw-material costs, government tax credits, and increased investor excitement over artificial intelligence.

During the conference call, Musk revealed that Tesla is in talks with a major original equipment manufacturer to license its “full self-driving” (FSD) software. However, he did not disclose the name of the company. FSD does not make the car autonomous and still requires driver supervision. Tesla is under regulatory scrutiny following several crashes involving its vehicles. Musk previously stated that achieving full self-driving capability is crucial for Tesla’s value.

Tesla announced progress in yield improvement for its 4680 cell production lines and an 80% increase in production in Texas during the second quarter. The company has faced challenges in meeting Musk’s targets for the production and performance of its own EV batteries called “4680” cells. However, Tesla remains on track to deliver its long-awaited electric pickup truck, the Cybertruck, this year.

In conclusion, Tesla continues to navigate through turbulent times by implementing price cuts, prioritizing volume growth over margins, and focusing on cost reduction and new product development. The company’s stock has experienced significant growth, and it remains committed to achieving its delivery targets. Tesla is also exploring opportunities to license its FSD software and making progress in its battery production.

About News Team

Hi, I'm Alex Perez, an experienced writer with a focus on lifestyle and culture news. From food and fashion to travel and entertainment, I love exploring the latest trends and sharing my insights with readers. I also have a strong interest in world news and business, and enjoy covering breaking stories and events.

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