Tesla has been a dominant brand in the electric car industry for over a decade. However, the financial reports for the second quarter of 2024 suggest that the California brand’s days of big numbers may be coming to an end: Tesla just posted its lowest profit margin in five years.
Behind these figures, far from the brand’s initial objectives This year, there are some strategic decisions by its CEO, Elon Musk. Among them, the delay of his promised “cheap electric car” to strengthen the division of autonomous robotaxis and Artificial Intelligence of the brand or the latest price reductions of its cars. The competition from China, increasingly strong, does not help either.
Tesla still making money, but its worst figures in five years
Tesla’s second quarter 2024 financial results show that the electric car brand has just recorded its lowest profit margin in the last five years. Specifically, “gross margin, excluding regulatory credits affecting the automotive industry, was 14.6%, lower than the 16.29% expected by analysts”, reports the NYT.
Despite having achieved revenues of 25.5 billion dollars (slightly higher than the previous year) Tesla’s net profit has remained at 1.48 billion of dollars, compared with $2.7 billion in the same period last year. This decline highlights the difficulties Tesla faces in maintaining its profitability in a market that is rapidly becoming saturated with new competitors.
The company’s current operating profit margin (a measure of how much money it makes per dollar of revenue) was 6.3%, down from 9.6% in the same period in 2023. These results are now likely to increase the pressure on Tesla and its CEO, Elon Musk, to prove that the company can find new ways to grow and make money.
But he has already tried. In April, Musk laid off more than 10% of his workforce, around 14,000 people worldwide, to cut costs. The dismissals, which were made via email, included 2,000 workers at his plant in Fremont (California, USA) and almost 2,700 at another in Austin (Texas, USA). However, he later had to rehire many of them.
This “failed” restructuring has thus generated additional charges that have affected profits. In addition, Tesla’s profit decline is said to have been influenced by the recent price cuts for the entry-level Tesla Model Y and Model 3, aimed at reviving demand for electric vehicles at a time when it is slowing globally.
Source: Reuters
But price cuts that have previously helped Tesla boost sales, Now they seem insufficient to attract new customers, which calls into question the long-term sustainability of this strategy.
At the same time, Musk has recently increased spending on his AI, robot and self-driving taxi projects, but has again delayed the long-awaited unveiling of Tesla’s promised “cheapest electric car” developed from scratch. This debut was expected for August 8, but now at the earliest it will be October 10.
Competition in the electric vehicle market has intensified, not only because there are more and more cheap Chinese electric cars, but with new models from traditional manufacturers such as Ford and General Motors gaining ground.
Elon Musk’s long-term bets: Robots, Artificial Intelligence and autonomous taxis
For months, Elon Musk has been redirecting much of Tesla’s resources to the development of artificial intelligence technologies, its “Tesla Bot” robots that have been in development for years. but they could reach the market by 2026 and, of course, its self-driving taxis. For now, the unsolved problems with the software are left aside.
Despite all this, Tesla expects to increase production in the third quarter and has started working on new batteries. However, analysts and investors are increasingly impatient to see concrete and sustainable results.
The recent 30% rise in Tesla stock since June reflects hope for new initiatives, but the reality of the current market isDemand more than future promises and consultations for X, before Twitterlike the one he launched yesterday.
“Should Tesla invest $5 billion in @xAIassuming the valuation is set by multiple credible outside investors? (Board approval and shareholder vote required, so this is just testing the waters),” he posted.
Should Tesla invest $5B into @xAIassuming the valuation is set by several credible outside investors?
(Board approval & shareholder vote are needed, so this is just to test the waters)
— Elon Musk (@elonmusk) July 24, 2024
While these initiatives offer an exciting narrative for most investors, they are long-term projects that have yet to generate significant revenues: the ever-controversial Musk’s predictions about the maturation of these technologies have always been optimistic but, so far, technological advances have not met expectations.
As Tesla moves into territory dominated by artificial intelligence and robotaxis, the company faces significant challenges in maintaining its position in the electric vehicle market.
The benefits still exist, but their constant decline, coupled with increasing competition and low demand, question Elon Musk’s strategy. If Tesla wants to remain an industry leader, it must quickly find a balance between innovation and maintaining short-term profitability.
Source: www.motorpasion.com
