Tesla's Profit Margins Suffer Amid Price Cuts and Discount Pressures
Jul/25/2024
Tesla's earnings were nearly halved as discounts and price cuts strained the electric carmaker’s profit margins. CEO Elon Musk attributed the decline to competitive price reductions from rivals, complicating Tesla's market position. Despite these challenges, Tesla is pushing forward with ambitious plans for robotaxis, AI, and humanoid robots, aiming to start production of the next-generation Roadster sports car next year. Musk also anticipates deploying "several thousand" Optimus robots in Tesla factories by next year and foresees "unsupervised" self-driving software by 2025. The company's total sales increased by 2% to $25.5 billion in the latest quarter, exceeding Wall Street's expectation of $24.8 billion, yet profits plunged 45% to $1.48 billion, causing a 6.9% drop in Tesla’s shares during out-of-hours trading. Musk dismissed the discounting issue as short-term. Recently, Musk has expressed political support for Donald Trump and announced relocating Tesla's headquarters to Texas, following the path of SpaceX and X (formerly Twitter). Despite the recent financial strain, analysts like Dan Ives from Wedbush remain optimistic, predicting Tesla's production will reach an annual rate of 2 million vehicles in the coming quarters. As the following chart shows, after peaking at almost 30 percent two years ago, Tesla's profit margin fell below 20 percent at the beginning of last year, then below 15 percent in the second quarter of 2024 (14.6 percent). This is the lowest profit margin recorded by the company in over five years.
