Tesla Profit Margins Hit 5-Year Low Amid Price Cuts, Incentives

On Tuesday, Tesla announced its lowest profit margin in more than five years and failed Wall Street profit projections in the second quarter as it reduced pricing to boost demand and expanded AI expenditure

The company was scheduled to manufacture new vehicles, including more affordable models, in the first half of 2025. However, the models will not achieve the anticipated cost reduction. After-hours trading resulted in an 8% decline in shares.

Thomas Monteiro, the senior analyst at Investing.com, stated that Tesla’s investors require more urgent results than before. This is true for both the humanoid robot and the robotaxi.

The second quarter was characterized by turbulence. CEO Elon Musk opted to forgo developing a new, more affordable car in favor of less ambitious models. It focused on developing self-driving taxis, contributing to the company’s share price increase.

Tesla’s profit was also impacted by restructuring charges and increased operating expenses, primarily driven by artificial intelligence initiatives. Additionally, the company terminated over 10% of its workforce to reduce costs.

According to 20 analysts surveyed by Visible Alpha, Tesla’s automotive gross margin, excluding regulatory credits, was 14.6% in the second quarter, which was lower than the estimated value of 16.29%.

According to Dan Coatsworth, an investment analyst at AJ Bell, Tesla has failed to meet earnings targets for four consecutive quarters. “Investors are captivated by the excitement of the narrative surrounding robotaxis, humanoid robots, and autonomous driving. However, it is important to remember that these are the potential riches of tomorrow, not today.”

Musk informed analysts during a conference call that Tesla has encountered some challenges due to the substantial discounts that new competitors have implemented on their electric vehicles.

As a result of a scarcity of affordable new models and increasing competition, automakers have experienced a decline in the number of electric vehicle deliveries in the past two quarters. Tesla’s sales of electric vehicles manufactured in China, which are also exported to Europe and other regions, experienced a decline in the second quarter compared to the previous year.

Conversely, BYD Co and other Chinese manufacturers experienced robust sales growth.
Tesla announced on Tuesday that it anticipates a sequential increase in production during the third quarter.

According to LSEG data, the company’s revenue for the quarter was $25.50 billion, which was marginally higher than the previous year and analyst expectations.

Tesla’s regulatory credit sales nearly tripled to a record $890 million in the second quarter compared to the previous year. To satisfy regulatory requirements for the production of clean vehicles, conventional manufacturers acquire credits from Tesla.

In the second quarter, net income was $1.48 billion, a decrease from $2.70 billion a year ago. The adjusted earnings of 52 cents per share were below the Wall Street consensus of 62 cents, as determined by LSEG.

ROBOTAXIS

Tesla’s shares have surged by over 30% since June 13, when shareholders voted to approve Musk’s $56 billion compensation package, which a Delaware court invalidated in January. Its shares were also bolstered by optimism regarding robotaxis.

Musk has advocated for Tesla as a technology company for years, and most recently, he emphasized the importance of self-driving technology. He predicted on Tuesday that self-driving software would be capable of operating Tesla vehicles autonomously next year, a prediction that has been overlooked for years. He expressed his surprise that this would not be the case.

On Tuesday, Tesla stated that the “timing of Robotaxi deployment is contingent upon regulatory approval and technological advancement.” However, Musk noted during the conference call, “I do not believe that regulatory approval will be a constraint.”

He also predicted that Tesla would receive regulatory approval for its “supervised” Full Self-Driving software, which necessitates driver attention, in China and Europe by the end of the year.

According to Musk, Tesla has postponed unveiling its Robotaxi product from August 8 to October 10 to implement significant modifications to the Robotaxi.

After Reuters reported that Tesla had redirected its focus to self-driving taxis, he had announced the August 8 unveiling date. Tesla had previously abandoned plans to develop a new, affordable car that was anticipated to be priced at approximately $25,000.

David Wagner, the head of equity and portfolio management at Tesla investor Aptus Capital Advisors, stated, “Elon is adept at presenting investors with a tempting proposition; however, new concepts are frequently characterized by a lack of execution in comparison to their vision.”

Musk had stated 2022 that Tesla anticipated mass-producing a robotaxi without a steering column or pedal by 2024.

On Tuesday, General Motors announced that its Cruise self-driving unit will concentrate its development efforts on a next-generation Chevrolet Bolt. The company has indefinitely postponed the planned Origin vehicle, which was to lack a steering column.

Tesla stated that Cybertruck production is “continuing to progress toward profitability by the year’s conclusion.”

Tesla has initiated the validation of its initial prototype Cybertruck vehicles, which utilize its innovative battery manufacturing technology, dry coating.

This technology is expected to be “a significant cost reduction milestone once fully operational.” Tesla anticipates that production will commence in the fourth quarter.