Musk mulling more price cuts for Tesla models
Elon Musk is contemplating the reduction of Tesla vehicles' prices as the company prioritizes boosting sales rather than focusing solely on profits. This strategy is aimed at paving the way for potential future profitability gains through the self-driving software.
Increasing the number of Tesla vehicles on the streets would assist the electric vehicle manufacturer in maintaining a majority of the market share in the United States. Additionally, this would gather valuable data on usage, which is essential for training the artificial intelligence algorithms supporting their self-driving technology.
Elon Musk enthusiastically discusses Tesla's Cybertruck during the earnings conference call.
Musk, the CEO of Tesla, stated that when considering the bigger picture in the long run, the fluctuations in gross margin and profitability over a short period of time are actually insignificant. He added that with the advancement of autonomy, all these figures will seem trivial.
The corporation has significantly reduced prices multiple times in the United States, China, and other regions since the latter part of the previous year. Moreover, they have amplified the amount of discounts and introduced additional incentives in order to lessen their existing stock. This strategic approach aims to safeguard their position against competitors and to mitigate the impact of economic unpredictability.
For instance, Tesla reduced the cost of its long-range Model Y in the United States by 25% this year to $50,490.
Musk expressed his confusion regarding the state of the global economy during a conference call with analysts. He stated that one moment it appears to be collapsing, but then suddenly everything seems to be back on track. He expressed his uncertainty about the current situation, referring to it as turbulent times.
Elon Musk, the CEO of Tesla, addresses attendees during a commencement event for the Tesla China-manufactured Model Y initiative in Shanghai on January 7, 2020.
Musk is of the opinion that complete autonomous driving has the potential to contribute the majority of Tesla's worth in the future, providing them with an advantage that competitors currently lack in their endeavors to make their electric vehicle operations financially viable.
On the other hand, Musk's attention on other matters might harm the company's current profits, given that it is currently dealing with a series of investigations by American safety regulators regarding numerous accidents involving Tesla vehicles.
The safety regulatory agency in the United States initiates an investigation into a tragic incident involving a Tesla vehicle.
The prediction regarding the profit margin might be unsatisfactory for certain individuals, including myself, who were hoping for a gradual improvement in margins this year, stated Gene Munster, who is a managing partner at Deepwater Asset Management and an investor in Tesla, in an interview with Reuters.
An inside glimpse of Tesla Inc's American automobile factory in Fremont, California. The electric car producer has made a request to obtain a license to construct a manufacturing unit for batteries at their Fremont location. (REUTERS/Shannon Stapleton / Reuters Photos)
In the second quarter, excluding any credits related to regulations, the company experienced a decrease in its automotive gross margin. Reuters' calculation shows that the margin slipped to 18.1% compared to 19% in the first quarter. This decline is significant as it is much lower than the 26% reported during the same period last year.
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Experts predicted that the low profit margin would probably have a negative impact on the company's stock. The stock has experienced significant growth this year, primarily because more and more people are using the company's charging system.
The year-to-date performance of Tesla stocks has witnessed an astonishing 137% increase.
Sales of new vehicles in the United States are continuing to rise steadily throughout the second quarter.
According to Ed Egilinsky, managing director at Direxion, those who are optimistic can highlight that the gross margins performed better than expected. The company also achieved a new high in quarterly revenues and is in talks with major auto manufacturers to obtain licenses for their fully self-driving technology. The much-anticipated release of their Cybertruck has also generated a great deal of excitement. On the other hand, those who are skeptical can argue that the operating margins have been declining and the gross margins show signs of stagnation. They may also point out that the delivery results were inflated due to price reductions. Additionally, the current stock price is trading at excessively high valuation levels and the company did not revise their guidance for the total number of deliveries at the end of the year.
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Reuters made a contribution to this report.
