Elon Musk is considering lowering the cost of Tesla vehicles as the company puts an emphasis on sales over profits, in hopes the self-driving software will eventually boost margins.
More Tesla cars on the road would help the EV manufacturer hold the bulk of market share in the U.S., while providing usage data needed to train the artificial intelligence models behind its self-driving technology.
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"The short-term variances in gross margin and profitability really are minor relative to the long-term picture. Autonomy will make all of these numbers look silly," said Musk, Tesla's CEO.
The company has slashed prices several times in the U.S., China and other markets since late last year and increased discounts and other incentives to reduce inventory, as it tries to shield against competition and economic uncertainty.
As an example, Tesla this year cut U.S. prices of its Model Y long-range version by a quarter to $50,490.
"One day it seems like the world economy is falling apart, next day it's fine. I don't know what the hell is going on," Musk told analysts on a conference call. "We're in, I would call it, turbulent times."
Musk believes full self-driving could one day account for most of Tesla's value and give it a cushion rivals lack as they try to turn their EV operations profitable.
However, Musk’s focus could hurt current profit margins as the company faces a string of probes from U.S. safety regulators involving a multitude of crashes involving Tesla models.
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"That margin outlook may be a disappointment for some, present company included, that were looking for margins to slowly improve this year," Gene Munster, managing partner at Deepwater Asset Management – a Tesla investor, told Reuters.
Throughout the second quarter and excluding regulatory credits, the company's automotive gross margin slipped to 18.1% from 19% in the first quarter, according to Reuters' calculation. It also marked a sharp decline from the 26% reported a year ago.
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Analysts said the margin weakness would likely weigh on the stock, which has more than doubled this year due to the growing adoption of the company's charging system.
Tesla shares are up 137% year to date.
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"Bulls can claim that gross margins were better than feared, record quarterly revenues, discussions with major auto manufacturers to license their full self-driving technology, and euphoria related to their much-anticipated Cybertruck release," Ed Egilinsky, managing director at Direxion, told FOX Business. "Bears can reference operating margins are in a downtrend, gross margins are potentially stagnating, delivery results were buoyed by reduction in prices, the current stock price is trading at very high valuation levels, and they didn’t raise their guidance for year-end total deliveries."
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Reuters contributed to this report.
