Tesla's price war is hurting its bottom line more than ever — and Elon Musk is prepared to keep going
Elon Musk addressed inquiries regarding the reduction in Tesla prices during the corporate financial report on Wednesday.
Elon Musk continues to vigorously compete with other car manufacturers by consistently reducing Tesla's prices.
The chief executive officer stated that Tesla will persist in reducing prices if the economy fails to stabilize.
The company has reduced its prices multiple times throughout the year, leading to a decline in its profit margins.
Tesla's aggressive pricing strategy is significantly impacting the company's profitability, yet Elon Musk remains unwavering in his determination.
"When the market conditions remain steady, I anticipate the prices to remain steady," stated Musk when questioned about the possibility of ongoing price reductions. "However, in the event that the market conditions become unstable, we may witness a decrease in prices."
The CEO of Tesla expressed that he is not concerned about sacrificing profit margins to increase vehicle sales.
"I believe it is logical to compromise profits in order to produce more cars because I anticipate a significant rise in their worth in the near future," stated Musk during Tesla's recent financial discussion. He further expressed his belief that Tesla's self-driving technology has the potential to be "the most substantial leap in asset value, perhaps in all of mankind's recorded past."
The company has continuously reduced prices throughout this year. However, both Tesla owners and investors have shown a negative reaction to these price reductions. The company's gross profit margin, which is lower than what analysts predicted, is approximately 18.2%. Furthermore, its quarterly gross profit margins have decreased by more than 10% compared to the previous year, with analysts attributing this decline to the price cuts. In addition, the company's operating margin dropped to 9.6% from 14.6% in the same period of the prior year.
Previously, the mega-rich individual has informed shareholders about his conviction that Tesla could potentially vend its automobiles without any monetary gain, thanks to the forthcoming profitability of FSD. Additionally, he expressed his disapproval that the company manages to generate positive cash flow while earnestly endeavoring to invest swiftly in novel technologies and products.
Regardless of worries about reduced prices, Tesla's earnings soared in Q2, surpassing predictions made by financial analysts. The manufacturer of electric vehicles announced adjusted profits of approximately $3.1 billion, equivalent to 91 cents per share, marking a 20% increase compared to the corresponding period in the prior year.
Greg Bassuk, the CEO of AXS Investments in New York, noted that the prices of new cars and the profits they generate have once again decreased. Investors are currently processing the level of challenges faced by sales of electric vehicles in comparison to the previous year, which was expected.
Late on Wednesday, the value of Tesla stocks experienced a decline of over 4% during after-hours trading.
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