Tesla Profits Climb Despite Price Cuts

Tesla, the electric vehicle (EV) giant, has reported a significant increase in profits, surpassing analysts’ expectations despite implementing price cuts that affected its revenue per vehicle sold.

In the second quarter, Tesla reported adjusted earnings of $3.1 billion, or 91 cents a share, representing a 20% increase compared to the same period last year. Analysts surveyed by Refinitiv had anticipated earnings of 82 cents a share. The company’s profit margin of 18.2% also outperformed expectations, although it remained lower than the previous year due to the series of price reductions introduced earlier this year. Last year, Tesla’s margin was 25%, and in the first quarter, it was 19.3%. The recent price cuts were expected to decrease the profit margin to under 17% in the most recent quarter.

While automotive revenue increased by 47%, excluding revenue from regulatory credits, it did not match the 83% surge in the number of vehicles sold. This indicates that Tesla’s strategy of lowering prices has indeed boosted demand for its cars.

The price cuts were implemented in response to heightened competition in the EV market from traditional automakers and rising interest rates, which increased the cost of vehicle purchases for most consumers.

Despite these challenges, Tesla’s operating margin remained healthy due to cost reduction efforts, increased production at factories in Germany and Texas, and strong performance in other business areas, such as energy and services.

In its earnings statement, the company emphasized its long-term commitment to success despite the ongoing uncertainties. Tesla plans to sell 1.8 million vehicles this year, representing a 37% increase from 2022’s total.

However, Tesla warned that third-quarter production would decrease due to scheduled summer shutdowns of its assembly lines. The company needs these shutdowns to implement upgrades at its factories.

During a call with investors, CEO Elon Musk revealed that Tesla is in early discussions with another major automaker to license its “full self-driving” (FSD) technology. While many automakers offer driver-assist options, Tesla claims to have the most advanced self-driving capabilities. Musk asserted that FSD-enabled cars are already safer than human-driven ones, and he believes they will be ten times safer than humans by the end of this year.

Despite Tesla’s strong performance, its shares fell about 2% in after-hours trading following the report. The stock had already experienced significant growth this year, with a 136% increase through Wednesday’s close, compared to a 65% drop in value last year.