Tesla’s Profit Margins Slip Amidst Price Cuts, Impacting Earnings

Tesla (Nasdaq: TSLA) reported Q2 revenue of $24.9 billion, exceeding analysts’ estimates of $24.51 billion. Adjusted EPS came in at $0.91, higher than the anticipated $0.81. This marks a slight gain from Q1 and an impressive increase of over 45% compared to the same period last year.

Tesla’s reported adjusted net income of $3.1 billion, surpassing estimates of $2.87 billion. This figure demonstrated significant growth from Q1’s adjusted net income of $2.9 billion.

In the last three months, Tesla’s gross profit margin from automotive operations, excluding the effect of regulatory credits, dropped to 18.2%. This was slightly lower than the 18.8% reported in the first quarter of 2023 and significantly below the 26.2% from a year ago. The decline was largely expected, as the company had trimmed prices to revitalize sales after a slow start to the year.

During the analysts’ call, the company warned of lower production this quarter due to factory downtime. CEO Elon Musk further hinted at the possibility of additional price reductions later in the year, expressing confidence in steady demand following price cuts in the US and China, which should lead to stable margins over the next 1-2 quarters.

The company reported progress in installing Cybertruck equipment at its gigafactory in Austin, Texas, with initial production scheduled to begin later in the year. Furthermore, Tesla disclosed that it now has close to 50,000 Supercharger connectors across more than 5,000 stations globally. Additionally, they are in early discussions with a major OEM regarding licensing full-self driving (FSD) software, showcasing their strides in autonomous driving technology.

Over the past three months, Tesla’s stock has seen a remarkable 58% surge, raising its share price by over $100. This growth was attributed to various factors, including charging deals with legacy automakers, a boom in AI-related stocks (in which Tesla was included), and robust Q2 production and delivery numbers.

Musk addressed concerns about potential rising interest rates affecting customers’ financing costs and stated that Tesla would adjust prices accordingly to mitigate the impact. He emphasized that, in the short term, the company is more focused on increasing vehicle sales, as the value of these vehicles is expected to rise substantially once Tesla perfects its Full Self-Driving software.

The CEO also revealed that Tesla plans to invest “north of $1 billion” over the next year in its new AI training hardware, known as Dojo, as part of its efforts to achieve full autonomy—a promise Musk has been making for years.

In Q2, Tesla reported global production of 479,700 units, with deliveries totaling 466,140. Both figures comfortably exceeded Wall Street’s consensus estimates, with deliveries setting a new all-time record for the company.

No bitcoin still

The electric vehicle maker revealed that it did not engage in any buying or selling of bitcoin during Q2 2023, marking the fourth consecutive quarter of maintaining its bitcoin holdings. The net value of the company’s digital assets remained at $184 million, consistent with the figures from the past three quarters.

During the second quarter, the price of bitcoin saw a modest increase, rising from approximately $28,500 at the end of Q1 to about $30,400 at the close of Q2. However, accounting rules currently prevent companies from adjusting the valuation of digital assets upward due to price increases, unless those assets are sold. Nonetheless, the rules do allow for reductions in valuation when prices decline, even before any sale occurs.

It’s worth noting that Tesla’s involvement with bitcoin has been a rollercoaster. In the second quarter of the previous year, the company sold over 30,000 bitcoin, amounting to around 75% of its holdings, for an impressive $936 million. This came after an initial purchase of $1.5 billion worth of bitcoin in early 2021, during which Musk publicly endorsed the crypto and announced Tesla’s acceptance of the cryptocurrency as payment for its vehicles. However, Musk later reversed this decision.

Information for this story was found via Yahoo Finance, CoinDesk, Financial Times, and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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