8 months ago • 2 mins
What’s going on here?
Tesla’s price-cutting tactic has slashed the EV maker’s margins, but Musk seems willing to pay the price for ultimate supremacy.
What does this mean?
Tesla’s slimmed-down prices might’ve hoisted sales up by 24% last quarter – but as expected, those discounts ate into profit margins big time. A host of profitability measures dropped to their lowest in years, well below the record highs of last year. In fact, the firm’s profit margins suffered even more than some analysts’ already reduced forecasts had predicted. But Musk’s so sure that lower profit in the short run will be outweighed by heftier market share in the future that he’s set to double down on this strategy. Mind you, with early results showing price cuts have only slightly lifted the number of cars Tesla’s sold this year so far, skeptical investors still sent shares down 6%.
Why should I care?
The bigger picture: Method to the madness.
In fairness, Tesla’s industry-leading margins do give the firm a lot to play with: the EV maker’s operating profit margin sat at 11.4% last quarter, casting a Cybertruck-sized shadow over rivals General Motors’ 6.6% and Ford’s 4% in 2022. What’s more, governments around the world are pushing for stricter emission restrictions, which means putting more EVs on the road. That could make it the right time for Tesla to assert its dominance, later leveraging that sway to profit from rolling out more autonomous and robotaxi features. Layer on Musk’s reassurance that orders are now outpacing production, and Tesla’s plan could soon see it relax on cruise control.
Zooming out: Back against the wall.
French carmaker Renault isn’t being drawn in yet, though, saying this week that it has no plans for drastic price cuts on its EVs. But some analysts reckon Europe’s third-biggest EV brand might have to cave to stay in the game – after all, Tesla’s Model 3 is now cheaper than Renault’s electric Megane in France.
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