Tesla’s profit margins slipped in the latest quarter as a series of price cuts this year weighed on its earnings, according to figures released on Wednesday.
Profitability still held up better than many analysts on Wall Street had forecast, and the US electric-car maker reiterated its target of selling 1.8mn vehicles this year, suggesting it was navigating a shaky electric vehicle market better than expected.
However, Tesla’s shares fell back 4 per cent during a call with analysts as the company said factory downtime would lead to lower production this quarter. Chief executive Elon Musk suggested that there could be further price reductions this year.
Tesla shares have risen 137 per cent since the start of the year, with most of the gains coming in the past two months as Wall Street has applauded its strategy of slashing prices to protect market share.
The company’s gross profit margin from automotive operations, excluding the effect of regulatory credits, dropped to 18.2 per cent in the past three months. That compared to 18.8 per cent in the first quarter of 2023 and 26.2 per cent a year ago.
Analysts had been expecting a steeper decline in the latest period after flagging sales at the start of the year led Tesla to trim prices. The move reinvigorated sales and lifted deliveries in the second quarter more than expected. Even at current depressed levels Tesla’s gross profit margins exceed most traditional carmakers.
Musk told analysts that if interest rates rise further this year, Tesla would cut prices again so that financing costs did not make its cars more expensive for customers. He also said the company was less focused on margins in the short term than on selling more vehicles, since the value of the vehicles would soar once Tesla perfects its Full Self-Driving software.
“It does make sense to sacrifice margins to make more vehicles,” he said. Musk also said that Tesla would spend “north of $1bn” over the next year on its new AI training hardware, known as Dojo, in an effort to reach the goal of full autonomy that he has been promising for years.
In recent weeks investors had been looking past the second-quarter results, assuming that they were likely to represent the bottom of the trough in profit margins. Tesla has been working to increase the efficiency of its car production and lift volumes from its newer plants in Texas and Germany. It said these efforts had played a big part in limiting the fall in its overall operating margin to 9.6 per cent this quarter, 5 percentage points lower than a year ago.
Thanks largely to working capital improvements, Tesla also managed to boost its free cash flow for the quarter to $1bn, up from $441mn in the preceding three months.
Adjusted earnings per share for the second quarter reached 91 cents, up from 76 cents in the same quarter last year and above the 82 cents most analysts had been expecting. Revenue rose 47 per cent to $24.9bn, about $500mn above forecasts.
Based on formal accounting principles, earnings per share rose by 13 cents to 78 cents.