The car manufacturer experienced a significant decline in earnings during the third quarter due to a 25% reduction in car prices as part of their efforts to remain competitive.
In the third quarter, Tesla’s profits took a hit, falling short of Wall Street’s expectations. This was primarily due to the company’s decision to reduce prices in order to maintain its dominant position in the electric vehicle market.
Elon Musk, Tesla’s CEO, also disappointed hopes that the upcoming Cybertruck model would swiftly turn the company’s financial situation around. He cautioned that it would take at least 18 months for the pickup truck to become profitable, following its release at the end of November.
During a conference call with financial analysts and investors, Mr. Musk emphasized the significant challenges in achieving volume production and positive cash flow with the Cybertruck. He stressed that substantial effort and resources would be needed to accomplish this.
Over the past year, Tesla has lowered car prices in the United States by approximately 25%, prioritizing sales over immediate profitability. As a result, the starting price for the least expensive version of Tesla’s best-selling Model Y SUV is now $44,000 before government incentives. This is roughly in line with the price of the comparable Toyota RAV4 Prime plug-in hybrid, which features both an electric motor and a gasoline engine.
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Tesla released a statement, maintaining their belief in the necessity of being a cost leader in the automotive industry.
However, despite their efforts, Tesla’s share of the electric vehicle market in the United States dropped to 50 percent in the third quarter, down from 60 percent in the first quarter, as reported by Kelley Blue Book. Competition from automakers like BMW, Mercedes, Hyundai, General Motors, and others, who have been rapidly introducing new electric vehicles, has eroded Tesla’s dominance.
Tesla is also encountering fiercer competition in China and Europe, two significant markets for electric cars, from local automakers.
Analysts had anticipated a decline in profit after Tesla revealed that third-quarter sales had fallen due to temporary factory shutdowns for retooling assembly lines in Austin, Texas, and Shanghai. However, the decrease in profit was more significant than expected.
Until recently, Tesla had been more profitable than established U.S. automakers, enabling them to lower prices. Kevin Roberts, Director of Industry Insights and Analytics at CarGurus, an online auto sales site, sees this as a strategy to protect market share at the expense of profit margins.
It’s worth noting that Tesla may not be able to keep lowering prices indefinitely. Their net profit margin in the third quarter was 8 percent, similar to that of traditional car manufacturers.
Investors had hoped that the Cybertruck pickup would boost sales. Tesla announced that they expected to begin deliveries on November 30, two years later than initially planned. Elon Musk admitted that Tesla had encountered substantial challenges in mass-producing the vehicle due to its unique stainless-steel body, which resists rust and doesn’t require painting but is harder to shape and weld.
Despite initial enthusiasm, Ford Motor, Rivian, and General Motors reported sluggish sales of electric pickup trucks, indicating that the market for such vehicles might not be as substantial as previously thought. General Motors even delayed its plans to start producing electric pickups in Michigan by a year, while Ford slowed production of its F-150 Lightning truck.
Elon Musk asserted that demand for the Cybertruck was exceptionally high, with over a million orders placed. However, he acknowledged that higher interest rates had led to increased monthly loan payments, making it harder for consumers to purchase new cars. He emphasized the importance of making the Cybertruck affordable.
Tesla could potentially benefit if the United Automobile Workers’ strike against Ford, General Motors, and Stellantis expands to more factories. Currently, workers at six plants owned by these companies have gone on strike, but Tesla workers are not part of a union.
Following these developments, Tesla’s stock price dropped by nearly 5 percent in regular trading on Wednesday and decreased an additional 3 percent in extended trading after Elon Musk’s conference call.
Musk commented on the economy, stating, “I’m not saying things will be bad, but I’m saying they might be.”
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