Even in difficult economic times, Tesla wants to stick to its aggressive pricing strategy for electric cars. This ensured record sales in the past quarter – but also a suffering margin.
In order to keep the pressure on the competition high, Tesla wants to continue the price war it initiated even in economically turbulent times. “I think it makes sense to sacrifice margins to build more cars,” said CEO Elon Musk when presenting the quarterly figures. “One day it seems like the global economy is falling apart, the next day everything is back to normal,” Musk added. “We are in – I would call it turbulent times.”
Fierce price war triggered
The electric car pioneer has started a price war for e-cars, which is particularly raging in China. Tesla also lowered prices several times in the USA. The group uses its high profitability to defend itself against competition from established car manufacturers, who are bringing more and more electric cars onto the market. In China, there is also the rise of companies such as BYD, now number one in the world’s largest car market.
As a result of the discount battle, many electric start-ups in the People’s Republic are threatened with financial difficulties, report industry representatives. But big car manufacturers like Volkswagen and Mercedes-Benz are also groaning. Meanwhile, Tesla has slowed the pace of price cuts, instead offering discounts on stock-produced vehicles.
Musk always emphasizes that he also accepts a drop in profitability for growth. Among other things, he argues that in times of high interest rates you have to sell cars cheaper so that they remain affordable. At the same time, Musk sees Tesla prepared to reduce production costs through greater efficiency.
Record number of deliveries, but declining profitability
With the price cuts, Tesla bought another record sale of its electric cars in the past quarter. Deliveries shot up by more than 80 percent year-on-year to a good 466,000 vehicles, partly due to the expansion of production in Grünheide near Berlin.
At the same time, the strategy has an impact on profit development. Earnings growth was muted, up 20 percent to $2.7 billion. The decline in Tesla’s profitability continued in the second quarter. The gross margin – which experts pay particular attention to – fell to 18.2 percent after 19.3 percent in the previous quarter. That’s the lowest reading in 16 quarters.
However, the company slightly exceeded sales expectations at $24.9 billion. Experts surveyed by Refinitiv had expected almost 24.5 billion and thus with even more pressure from the price reductions. Adjusted earnings of 91 cents per share came in well above guidance of 82 cents. The Tesla papers lost almost five percent in after-hours trading. Since the beginning of the year, however, the price has increased by 138 percent.
“Understanding the True Nature of the Universe”
In addition, Tesla boss Musk made some full-bodied promises: He believes that the advanced version of Tesla’s Autopilot assistance system will be able to control a vehicle better than a human by the end of the year. In addition, according to Musk, the most modern version of the autopilot technology could move into vehicles of another brand for the first time. Tesla is in talks with a major manufacturer, according to the Twitter owner. He did not name the interested company.
At the same time, the tech billionaire announced higher spending on artificial intelligence (AI) and the development of new products. Tesla has so far built ten of the planned everyday robots in human form “Optimus”, he said. Over the coming year, they should be able to do something useful in the factories. Musk recently announced the founding of an AI startup called xAI. The aim is to “understand the true nature of the universe”.
With the Cybertruck, the start of production of which had been delayed for a long time, Tesla now sees itself on course. Delivery of the first models is scheduled to begin this year. In the meantime, the group is also pushing ahead with its expansion and submitted an application for the expansion of its gigafactory in Brandenburg. The aim is to double the capacity of the Grünheide plant to one million vehicles.