Last year, Tesla made significant waves in the EV market by implementing substantial price reductions on its models in the United States, China, and Europe. Following this, the company continued to offer price cuts on multiple occasions, although the market has now reached a relatively stable point this summer.
Notably, Elon Musk, the CEO of Tesla, recently declared his intention to further reduce prices on electric vehicles despite facing uncertain economic conditions. This decision carries the potential risk of putting pressure on the company’s profit margins.
During Tesla’s Q2 2023 earnings call, Musk addressed analysts, expressing his views on the current state of the world economy, emphasizing that these challenging times often necessitate making tough choices.
“One day, it seems like the world economy is falling apart; the next day, it’s fine. I don’t know what the hell is going on. We’re in. I would call it, turbulent times.”
In previous statements, Musk mentioned Tesla’s willingness to prioritize volume growth over profit margins, a stance he reaffirmed recently. He expressed, “Expanding our vehicle production is a logical step, even if it means sacrificing some margins.”
Moreover, he acknowledged the possibility of adjusting prices during uncertain macroeconomic periods. Following Musk’s remarks, Tesla’s stock plunged by approximately 5%.
As per Reuters’ analysis, the electric vehicle manufacturer’s gross margin for the automotive sector in the last quarter decreased to 18.1 per cent (excluding regulatory credits) compared to 19 per cent in the previous quarter. This figure aligned with the expectations of financial analysts. However, it is noteworthy that it remains considerably lower than the 26 per cent reported by Tesla in the same quarter the previous year.
In its recent financial update, Tesla disclosed a gross margin of 18.2 percent for the period spanning April to June, marking the lowest figure in the past 16 quarters. This outcome was primarily influenced by the implementation of price reductions. Notably, Tesla took the decision to significantly lower the prices of its Model Y long-range
version, which happens to be its top-selling vehicle. The price reduction amounted to a quarter of its original value, bringing the price down to $50,490 in the United States.
In a recent statement, Tesla emphasised its commitment to cost reduction and the development of innovative products, acknowledging the ongoing challenges in these uncertain times. The company maintained its projection of delivering approximately 1.8 million vehicles this year. However, Tesla also cautioned that production in the upcoming quarter might experience a slight decrease due to planned downtimes aimed at implementing factory upgrades.
Source and Images: InsideEVs