Tesla may keep cutting prices in ‘turbulent times’, Elon Musk says

Bengaluru/SAN FRANCISCO – Tesla chief executive Elon Musk signalled on Wednesday that he would cut prices again on electric vehicles (EVs) in “turbulent times”, even as his all-out price war on automaker rivals squeezes the company’s margins.

The company has slashed prices several times in the United States, China and other markets since late 2022, 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,” Mr Musk told analysts on a conference call. “We’re in, I would call it, turbulent times.”

Tesla shares, which had been largely flat in after-hours trading in New York on Wednesday, fell nearly 5 per cent after Mr Musk’s comments.

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

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

As an example, Tesla in 2023 cut US prices of its Model Y long-range version by 25 per cent to US$50,490 (S$66,800).

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 Wall Street estimates, but a far cry from the 26 per cent it reported a year earlier.

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

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

Wedbush analysts said in a note: “Multiple rounds of aggressive price cuts have put Tesla in a position of strength after building its EV castle and now is set to further monetise its success.”

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 Mr 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 US and elsewhere, drove Tesla’s deliveries to a record 466,000 vehicles in the April-to-July period globally, but ate into its profitability.

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

Tesla’s stock received a big boost in 2023 after Ford Motor, General Motors and a raft of other automakers and EV charging firms said they would adopt Tesla’s charging technology.

The company’s stock has risen 60 per cent since the first such deal on May 25. So far this year, it is up 138 per cent, helped also by expanded federal credits for Model 3s and investor excitement over artificial intelligence.

The company said on Wednesday that lower raw material costs and government tax credits helped reduce the cost per vehicle but added that it saw an increase in operating expenses driven by Cybertruck, AI projects and the production ramp of its “4680” battery cells that are key to making cheaper and compelling EVs.

Tesla benefited from US$150 million to US$250 million in tax credits in the second quarter, it said, while receiving similar benefits from lower raw material costs such as lithium and aluminium.

Tesla said production of the long-delayed electric pickup Cybertruck remained on track for initial deliveries this year. REUTERS