Tesla offers handsome profit beat to quell worries on slipping margins By Reuters


© Reuters. FILE PHOTO: The logo of automaker Tesla is seen at a branch office in Bern, Switzerland on October 28, 2020. REUTERS/Arnd Wegmann/File Photo

By Akash Sriram and Hyunjoo Jin

(Reuters) – Tesla on Wednesday handily beat quarterly profit estimates and reported gross margin for cars in line with Wall Street expectations, suggesting it is gaining ground in an electric-vehicle price war sparked by Chief Executive Elon Musk.

Under pressure from rising competition and an unstable economy, Tesla (NASDAQ:) has lowered prices several times in the United States, China and other markets since late last year, and increased rebates and other incentives to reduce inventory.

That put pressure on the auto’s industry-leading gross margin, a closely watched indicator of the company’s financial health, but Musk said Tesla would sacrifice profit margins to drive volume growth.

For example, this year Tesla cut prices for its long-running Model Y version by a quarter, to $50,490.

Tesla said in a statement Wednesday that it is focused on cutting costs and developing new products, and that “the challenges of these uncertain times are far from over.”

Gross auto margin, excluding regulatory credits, fell to 18.1% in the second quarter from 19% in the first quarter, according to a Reuters calculation. A year ago it was 26%.

Tesla reported a gross gross margin of 18.2% for the April-June period — the lowest in 16 quarters — compared to 19.3% for the first quarter.

“Multiple rounds of aggressive price cuts have put Tesla in a position of strength after building its electric fortress, and it is now poised to monetize its success,” Wedbush analysts said in a note.

Shares of the Austin, Texas-based automaker were flat after the bell, after choppy trading right after the results were announced.

On Wednesday, the company reiterated that it expects to deliver around 1.8 million vehicles this year. The automaker predicted in October that it would sell every car it made for the foreseeable future, but in the second quarter it produced 13,560 more cars than it delivered. However, this number was lower than the first quarter numbers.

Recently, the lack of new models has made it more difficult for Tesla to face competitors in China, where attractive offers from local players have affected demand.

Lower prices, combined with government tax breaks for electric car buyers in the US and elsewhere, pushed Tesla deliveries to a record 466,000 vehicles in the April-July period globally, but it benefited from its profitability.

However, on an adjusted basis, Tesla earned 91 cents per share. Analysts had expected a profit of 82 cents per share, according to Refinitiv.

The company reported revenue for the April-June period of $24.93 billion, compared to an estimate of $24.48 billion, according to Refinitiv data.

High costs

Tesla stock received a big boost this year after Ford Motor Company (NYSE: NYSE), General Motors (NYSE: NYSE), and a host of other automakers and electric vehicle charging companies said they would adopt Tesla’s charging technology.

The company’s stock is up 60% since the first such deal with Ford on May 25. And so far this year it’s up 138%, also helped by an expansion of federal credits for Model 3s and investor excitement about artificial intelligence.

The company said Wednesday that lower raw material costs and government tax credits have helped reduce cost per vehicle, but it has seen an increase in operating expenses driven by Cybertruck and artificial intelligence projects, as well as a production ramp for 4,680-cell batteries that are key to making cheaper and more convincing electric vehicles.

Tesla said production of its long-delayed Cybertruck electric truck remains on track for initial deliveries this year.

Musk introduced the pickup at the 2019 event but has since pushed back the production timing. Last year, he cited a shortage of component sources as a reason for delaying the Cybertruck’s launch to 2023.

“We’ve made significant progress improving yields for our 4,680 cellular product lines,” Tesla said Wednesday, but didn’t elaborate on yield and production volume.

In 2020, Musk unveiled a plan to produce Tesla’s own EV batteries called “4680” cells. But the automaker has struggled to meet Musk’s goals for cell production and performance.

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