Tesla’s Margins Strain Amid Discounts Investors Eye Self-Driving Tech
Discounts to clear inventory, price cuts and incentives such as cheaper financing options offered to boost EV sales have squeezed Tesla’s margin over the past two years, while sales dropped as customers grew tired of its old model lineup.
The company is laying off 10% of its global workforce, a memo revealed in April.
Now, investors will want to hear more about Tesla’s pivot to self-driving technology and how that could once again set the company apart from other automakers and fuel the sort of rally in its stock that propelled it to a record high in 2021.
Musk had announced earlier this year that Tesla would unveil its robotaxi on Aug. 8 but signaled last week the automaker would take more time to incorporate a design change following a media report that the launch was delayed to October.
Wall Street expects Tesla’s automotive gross margin, excluding regulatory credits, to have slipped to 16.27% in the April-June period, its lowest since the first quarter of 2019, according to 20 analysts polled by Visible Alpha.
Profit Margin for Vehicle Sales
Profit margin for vehicle sales, excluding the sales of regulatory credits, was 16.36% in the January-March period and 18.14% in the second quarter of 2023.
Tesla’s discounted financing at a time when interest rates are high “represents an even less visible price cut”, Bernstein analyst Toni Sacconaghi said in a note earlier this month.
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This cost will be “realized gradually over the life of the loan, effectively pushing out margin pressure into future periods,” he said.
Margins are likely to bottom by the end of this year and start to increase next year, analysts said, as costs associated with a production ramp-up of the Cybertruck eases.
“AI and robotaxi is such a huge opportunity over the next two, three, five years. So if you’re a long-term believer, you’re going to take the margins like your medicine,” said Paul Marino, Chief Revenue Officer of GraniteShares, which offers funds related to Tesla’s stock.
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