Tesla profit margin worst in five years as price cuts, incentives weigh on bottom line

BENGALURU/SAN FRANCISCO – Tesla on July 23 reported its lowest profit margin in more than five years and missed Wall Street earnings targets in the second quarter, as the electric vehicle (EV) maker cut prices to revive demand while it increased spending on artificial intelligence (AI) projects.

The company said it was on track to produce new vehicles, including more affordable models, in the first half of 2025, although the models will result in achieving less cost reduction than previously expected. Shares fell 7 per cent in after-hours trade.

“Perhaps more than ever in the company’s recent history, Tesla’s investors need results; those will have to come fast – both for the humanoid robot and for the Robotaxi,” said Investing.com senior analyst Thomas Monteiro.

The second quarter was tumultuous, with Tesla’s chief executive officer, Mr Elon Musk, shelving development of an all-new cheaper car in favour of less ambitious lower-cost models and working on creating self-driving taxis, helping to boost shares.

The company laid off more than 10 per cent of its employees to cut costs, and Tesla said profit was also weighed down by an increase in operating expenses largely driven by AI projects and restructuring charges.

Tesla recorded automotive gross margin excluding regulatory credits of 14.65 per cent in the second quarter, compared with estimates of 16.29 per cent, according to 20 analysts polled by Visible Alpha.

Mr Dan Coatsworth, investment analyst at AJ Bell, said Tesla has now missed earnings targets for four quarters in a row. He added: “There is a lot of talk about robotaxis, humanoid robots and autonomous driving, which provides an exciting narrative for investors but doesn’t get over the fact that these are tomorrow’s potential riches, not today’s.”

Mr Musk told analysts on a conference call that new competitors “have discounted their EVs very substantially, which has made it a bit more difficult for Tesla”.

The company’s EV deliveries have fallen for two consecutive quarters as the carmaker battles rising competition and slow demand stemming from a lack of affordable new models. Tesla’s sales of China-made EVs, which are also exported to Europe and elsewhere, slumped in the second quarter from a year earlier, whereas BYD and other Chinese carmakers posted strong sales growth.

Tesla said on July 23 it expected a sequential increase in production in the third quarter.

The company reported revenue of US$25.5 billion (S$34.3 billion) for the quarter, slightly ahead of last year and analyst targets, according to London Stock Exchange Group (LSEG) data.

Tesla’s sales of regulatory credits nearly tripled to US$890 million in the second quarter from a year earlier. Traditional carmakers buy credits from Tesla to meet clean-vehicle production regulatory targets.

Net income was US$1.48 billion in the second quarter, compared with US$2.70 billion a year ago, with adjusted earnings of 52 US cents per share missing the Wall Street consensus of 62 US cents, as calculated by LSEG.

Robotaxis 

Shares of Tesla have surged more than 30 per cent since June 13, when shareholders voted to approve Mr Musk’s US$56 billion pay package that was invalidated by a Delaware court in January. Its shares were also boosted by hopes for robotaxis.

Mr Musk over the years has promoted Tesla as a technology company, most recently saying self-driving technology was key. Predictions of that technology maturing have been missed for years, but on July 23, he forecast that self-driving software would be able to drive Tesla vehicles without human supervision in 2025, saying he would be shocked if that were not the case.

Tesla said on July 23 the “timing of Robotaxi deployment depends on technological advancement and regulatory approval.” But Mr Musk said during the conference call: “I don’t think regulatory approval will be a limiting factor.”

He also said Tesla is likely to win regulatory approval for its “supervised” Full Self-Driving software, which requires driver attention, in China and Europe by the end of 2024.

Mr Musk said Tesla has delayed the unveiling of its Robotaxi product to Oct 10 from Aug 8 to make some important changes to it.

He had announced the Aug 8 unveiling date after Reuters reported that Tesla had pivoted to self-driving taxis after shelving plans to develop a long-promised all-new cheaper car expected to be priced at around US$25,000.

“Elon is great at dangling the carrot in front of investors, but new ideas tend to be long on vision, but short on execution,” said Mr David Wagner, head of equity and portfolio manager at Tesla investor Aptus Capital Advisors.

Mr Musk had said in 2022 that Tesla expected to mass-produce a robotaxi with no steering wheel or pedal by 2024, after missing his targets for self-driving vehicles multiple times.

General Motors said on July 23 its Cruise self-driving unit will focus its development efforts on a next-generation Chevrolet Bolt as it indefinitely delays its planned Origin vehicle that would not have a steering wheel.

Tesla said Cybertruck production “remains on track to achieve profitability by end of year”.

Tesla said it has started validation of its first prototype Cybertruck vehicles using its breakthrough battery manufacturing technology called dry coating, which is “a major cost reduction milestone once ramped” and that production could begin in the fourth quarter. REUTERS