- Elon Musk shows no signs of Tesla’s price war slowing down.
- The CEO said Tesla will continue to cut prices unless the economy stabilizes.
- The company has slashed its prices several times throughout the year and its profit margins have slipped as a result.
Tesla’s price war is taking a toll on the electric car maker’s profit margins, but Elon Musk shows no signs of stopping.
“If market conditions are stable, I think prices will be stable,” Musk said when asked if price cuts would continue. “If they are not stable, then we would have lower prices.”
Tesla’s CEO said he’s not worried about carving up profit margins in favor of selling more vehicles.
“I think it makes sense to sacrifice margins in favor of making more vehicles because we think in the not-too-distant future they will have a significant increase in valuation,” Musk said during the company’s earnings call on Wednesday, adding that he believes Tesla’s autonomous software could be “the biggest step change in asset value, maybe in history.”
The company is repeatedly slashed prices this year. And both Tesla owners and investors have not responded positively to the price cuts. The company’s gross profit margin dipped below analysts’ expectations to around 18.2% and its quarterly gross profit margins fell over 10% year-over-year, with analysts blaming the price cuts. The company’s operating margin also fell to 9.6% from 14.6% during the same period a year earlier.
In the past, the billionaire has told investors that he believes Tesla could technically sell its cars even at “zero profit” because of FSD’s future profitability. He added that it was “too unfortunate” that the company has positive free cash flow at all as it seeks to rapidly invest in new technologies and products.
Despite concerns about price cuts, Tesla’s profits rose in the second quarter, beating Wall Street estimates. The electric car maker reported adjusted earnings of about $3.1 billion, or 91 cents a share, up 20% from the same time a year earlier.
“Both new car prices and profit margins have declined again and, while expected, investors are grappling with the difficulty of EV car sales this year, compared to 2022,” Greg Bassuk, CEO at AXS Investments in New York, said in a note.
Tesla shares sank more than 4% in late trading on Wednesday.