Tesla’s profits margins fell in the last quarter due to a series price cuts that have weighed on earnings this year, according figures released on Wednesday.
The US electric car maker has reiterated that it will sell 1.8 million vehicles in this year. This suggests the company is doing better than analysts expected to navigate a shaky market for electric cars.
Tesla shares dropped by 4 percent during a conference call with analysts, as the company announced that factory shutdowns would result in a lower level of production for this quarter. Elon Musk, the chief executive of Tesla, suggested that further price cuts could occur this year.
Tesla has seen its shares rise 137 percent since the beginning of the year. The majority of these gains have come in the last two months, as Wall Street applauded the company’s strategy to cut prices and protect market share.
In the last three months, the company’s gross margin for automotive operations fell to 18.2%, excluding regulatory credits. This compares to 18.8 percent in the first quarter 2023 and 26.2% a year earlier.
Analysts expected a more dramatic decline after Tesla’s price cuts at the beginning of the year. The move boosted sales and deliveries more than expected in the second quarter. Tesla’s gross margins are higher than most traditional automakers, even at the current low levels.
Musk said that Tesla will cut prices if interest rates continue to rise this year so that customers do not pay more for their cars due to financing costs. Musk also stated that the company is less concerned with margins than selling more cars in the near future, as the value of vehicles will soar when Tesla’s Full Self-Driving Software is perfected.
He said that it was logical to sacrifice margins in order to produce more cars. Musk said Tesla would also spend “norther than $1bn” in the next year to purchase its new AI-training hardware called Dojo. This is part of his effort to achieve the full autonomy he has promised for years.
Investors have been looking at the results of the second quarter, thinking that it was the bottom end in terms of profit margins. Tesla is working to improve the efficiency of car production, and increase volumes at its newer factories in Texas and Germany. These efforts, it said, had been a major factor in the reduction of its operating margins to 9.6% this quarter – 5 percentage points less than last year.
Tesla’s free cash flow increased to $1bn for the third quarter, up from $441mn the previous three months.
The adjusted earnings per share reached 91 cents for the second quarter, an increase from 76 cents during the same period last year. This was higher than the 82 cents that most analysts expected. Revenue increased by 47 percent to $24.9bn. This was about $500mn more than analysts had predicted.
Earnings per share based on formal accounting principles rose from 78 cents to 13 cents.