Tesla’s Profit Proved A Little Evasive

Tesla’s Profit Proved A Little Evasive
Paul Allison, CFA

8 months ago2 mins

Mentioned in story

What’s going on here?

Tesla reported record deliveries and revenue for the second quarter, but investors are biting their nails about the firm’s future profitability.

What does this mean?

Tesla had already spilled the beans on its car deliveries for the last quarter – a record 466,000 – so the suspense was all about the profitability of those impressive sales. And given that Tesla’s been slashing prices and selling less profitable models, it wasn’t a total shocker when overall margins dipped to 9.6%. That said, the auto division’s gross margins – that’s the selling price of a car minus the direct cost to make it – were 18.2%, a smidge better than Wall Street’s crystal ball had predicted. So maybe it was Elon Musk’s hint at more price cuts that gave investors the jitters and sent shares down after hours – or maybe wily shareholders just decided to quit while they were ahead.

Tesla margins

Why should I care?

Zooming out: The bar was sky-high.

Tesla’s shares have already rocketed up 130% this year, so the firm would’ve needed an outright blockbuster for its stock to pop even higher. And while it didn’t quite hit that mark, let’s not forget that Tesla smashed its target of delivering 50% more cars each year and continued to snatch market share – even with a flood of competitive EVs hitting the scene. Against that backdrop, the 6% dip isn’t exactly a big red flag.

Tesla income

The bigger picture: Software but a hard sell.

Musk’s not sweating about profit margins in the short term: he’s all about shipping as many cars as possible, even if that means trimming prices. See, he’s banking on Tesla drivers shelling out for pricey self-driving software when it’s ready to roll. In theory, those software margins will balance out any price cuts, revving up the firm’s overall profitability. But that depends on drivers being ready to kick back and let their cars do the driving – and the jury’s still out on that one.

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