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Tesla’s Price Cuts Brought In Huge Revenue, But Lower Profit Margins

The company reported record deliveries in its latest earnings call, but profits have suffered to make that happen.
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Once upon a time, it was an open question whether Tesla would survive in the long term. Regardless, the company hung on through production hell to become a leading EV manufacturer. In the latest quarter, it’s seen major gains in revenue as price cuts have tempted new customers, but profitability has suffered.

As covered by Reuters, the headline figure from Tesla’s earnings call was revenue, up to $24.93 billion in the April-June period. To put it in context, that’s a full 47% increase compared to the same period last year. That figure, marginally better than estimates, came on the back of record deliveries for the electric automaker. Tesla shipped a full 466,000 vehicles in Q2, propelled by price cuts.

However, the uptick in sales isn’t the whole story, with the company’s price strategy proving a double-edged sword. While the cost cuts have helped buoy deliveries, they have in turn cut the automaker’s profit margins. The company’s automotive gross profit dipped to 18.1%, down from 19% in Q1. Last year, that figure stood at a mighty 26%, at a time when Tesla was posting record profits. This quarter, it posted a profit of 91 cents per share, outperforming some predictions but still lower than many investors would be hoping for.

According to CEO Elon Musk, the company’s priority is to increase sales growth ahead of profit for the time being. That lines up with the deep price cuts the company has made in recent times. Both the Tesla Model 3 and Model Y now retail significantly cheaper than before, having seen prices slashed by 20% this year.

Price cuts have been unpopular with existing owners, due to its knock-on effect to used prices, but new buyers certainly aren’t complaining. Tesla believes it can shift every car it manufactures this year, based on strong demand. The automaker expects to deliver 1.8 million vehicles by year’s end.

Overall, Tesla’s shares have been on a strong run, more than doubling in value this year. Further boosting the outlook has been the uptake of the North American Charging Standard by multiple automakers, which has been a major win for the company.

Tesla still faces challenges ahead, with an aging fleet of models and a slow timeline for replacements. However, at least for now, the automaker is shifting plenty of vehicles, even if it took a hit to profits to do so.

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