Tesla cars to get cheaper amidst 'turbulent times', says Musk

Besides price cuts, increased discounts and other incentives have been introduced since late last year

By Reuters

Published: Thu 20 Jul 2023, 10:36 AM

Tesla CEO Elon Musk signalled on Wednesday that he would cut prices again on electric vehicles in "turbulent times", even as his all-out price war on automaker rivals squeezes the company's own margins.

The company has slashed prices several times in the US, China and other markets since late last year, and increased discounts and other incentives to reduce inventory, as it tries to shield against competition and economic uncertainty.

"One day it seems like the world economy is falling apart, next day it's fine. I don't know what the hell is going on," Musk told analysts on a conference call. "We're in, I would call it, turbulent times."

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Tesla shares, which had been largely flat after hours, fell nearly 5 per cent after Musk's comments.

The large price cuts have pressured Tesla's automotive gross margin, a closely watched indicator in the industry, but Musk has said Tesla would sacrifice margin to drive volume growth.

He said so again on Wednesday: "I think it makes it does make sense to sacrifice margins in favour of making more vehicles," adding that if macroeconomic conditions were not stable, Tesla would have to lower prices.

As an example, Tesla this year cut US prices of its Model Y long-range version by a quarter to $50,490.

Tesla's quarterly automotive gross margin, excluding regulatory credits, fell to 18.1 per cent in the second quarter from 19 per cent in the first quarter, according to Reuters' calculations. That was in line with Street estimates, but a far cry from the 26% it reported a year earlier.

Tesla reported overall gross margin of 18.2 per cent for the April-June period, the lowest in 16 quarters.

Earlier, Tesla said in a statement it was focusing on reducing costs and on new product development, and that the "challenges of these uncertain times are not over."

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"Multiple rounds of aggressive price cuts has put Tesla in a position of strength after building its EV castle and now is set to further monetize its success," Wedbush analysts said in a note.

Tesla reiterated its expectations of achieving deliveries of around 1.8 million vehicles this year, but said production in the third quarter would decrease slightly due to planned downtimes for factory upgrades.

"It's a fine line," said Thomas Martin, a portfolio manager at Globalt Investments, which holds Tesla stock.

"They are trying to get the prices right so they can generate the demand for the units, and then they like to run their factories as efficiently as they can ... they don't want to build up those inventories."

Lower pricing, along with government tax breaks for EV buyers in the United States and elsewhere, drove Tesla's deliveries to a record 466,000 vehicles in the April-July period globally, but ate into its profitability.

Still, on an adjusted basis, Tesla earned 91 cents per share, on the strength of non-core income and largely in line revenue $24.93 billion. Analysts had expected a profit of 82 cents per share, according to Refinitiv.