2023-04-19 21:15:33
Posted
AutomobileTesla profits weighed down by lower car prices
Elon Musk’s group has chosen in recent months to lower the price of its cars around the world to prevent sales from slowing too much.
Tesla acknowledges that the price cuts have weighed on profit margins but believes they remain at a “manageable rate”. (illustrative image)
AFP
Tesla has cut prices several times in recent months to stimulate demand for its electric vehicles, a move that helps its sales continue to climb but also weighs on its profits.
For Elon Musk, the strategy is clear: it is better to produce more even if the margins are temporarily lower. “We want to continue to sell as many cars as possible despite the uncertain macroeconomic environment,” he said on Wednesday during a conference call following the publication of quarterly results.
The group relies heavily on the marketing of autonomous driving tools on which it has been working for several years, he recalled. “It is better to deliver a large number of cars with a lower margin and collect this margin later, as we perfect” these tools, explained the manager.
Lower operating margin
The turnover of the group led by Elon Musk climbed 24% over the period, to reach 23.3 billion dollars. The company delivered 36% more vehicles over the quarter. Its net profit at the same time plunged 24% to 2.5 billion.
To prevent sales from slowing too much due to the economic slowdown, the rise in interest rates which makes it more expensive to buy a car and the arrival of many models of electric vehicles, Tesla has chosen , in recent months, to lower its prices, both in the United States and in China or Europe.
The group once more made price reductions on Wednesday in the United States on its popular Model 3 and Model Y. Tesla has indeed made cost reductions but its operating margin, from 16.8% in 2022, plunged to 11, 4%. However, it remains much higher than at Ford (4% in 2022 according to FactSet) or at General Motors (6.6%).
“Manageable rate”
Tesla acknowledges that the price cuts have weighed on profit margins but believes they remain at a “manageable rate”. The company also suffered from higher raw material, logistics and warranty costs as well as expenses incurred to ramp up production of the so-called 4680 battery cells.
“We plan to continue to reduce our vehicle costs, including improving production efficiencies at our newer plants and reducing logistics costs, and we remain focused on operational leverage as we go forward. as we grow,” the group said in a statement.
Many other automakers are still figuring out how to make their new electric vehicle programs profitable and, in this context, Tesla wants to take advantage of its leadership position to consolidate its position, explains the company.
Falling stock
While new models arrive on the market every quarter, Tesla’s dominance in the electric vehicle segment is gradually weakening: according to the firm Cox Automotive, in the United States, the group’s market share has gone from 79% in 2020 to 62% in the first quarter.
Tesla shares, which had fallen 65% in 2022 before rebounding around 47% since the start of the year, lost 4% on Wednesday in electronic trading on Wall Street. Its turnover as its profits came out below analysts’ expectations.
The company has also maintained its objective of producing just over 1.8 million vehicles over the year. It also stressed that the production of its Cybertruck pickup was “on track” to begin, as planned, during the year in its new factory in Texas.
(AFP)
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