Tesla Profit Exceeds Target; Musk says high prices could hurt demand

Tesla reported a weaker-than-expected quarterly profit decline on Wednesday, helped by a series of price increases for its cars, which Elon Musk said were “embarrassing” and could hurt demand.

Tesla also sold the majority of its bitcoin holdings, resulting in lower-than-expected impairment charges caused by a drop in the value of the cryptocurrency, analysts said.

CEO Elon Musk flip-flopped on a post-earnings conference call, initially saying macroeconomic uncertainty could impact demand for his electric vehicles, but when asked for details by an analyst, he said the company did not have a demand problem. but a production problem.

He said: “You can’t just raise prices arbitrarily high because you’re going over the affordability line and demand is falling off a cliff.” “(Prices) are frankly at embarrassing levels. But we’ve also had a lot of supply chain and production shocks and we’ve got crazy inflation,” said Musk who previously referred to “a super bad feeling.” about the economy.

Tesla has raised prices several times over the past year. For example, the US price of its long-range Model Y version is now $65,990, up more than 30% since the start of 2021.

Musk said he expected inflation to start falling by the end of the year and most commodity prices to stabilize, which he hoped would allow Tesla to reduce prices slightly.

Tesla shares rose 1.7% in premarket trading on Thursday. Shares are down about 40% from their November peak.

Chief Financial Officer Zachary Kirkhorn said Tesla is still striving to achieve 50% growth in shipments this year, adding that while the goal has become more difficult, “it is still possible with strong execution.” Tesla’s Chinese factory ended the second quarter with a record monthly production level, after being forced to close due to COVID-19 related lockdowns.

Musk said new factories in Berlin and Texas aim to produce 5,000 cars a week by the end of the year, adding that Berlin was producing 1,000 cars a week in June. He had previously said that the new factories were “gigantic money ovens”. Morgan Stanley analysts said in a report after Tesla’s earnings announcement that they see “near-term margin headwinds due to (new) challenges from ramping up new production, especially in Berlin”.

Tesla executives acknowledged some lingering strain in older-generation chip supply, but said there were no major issues in chip and battery supply, barring unplanned shutdowns related to the COVID.

The electric vehicle maker posted adjusted earnings of $2.27 per share for the second quarter ended June, versus consensus analyst estimates of $1.81.

Automotive gross margin fell to 27.9%, down from a year earlier and a quarter earlier.

Total revenue fell to $16.93 billion from $18.76 billion a quarter earlier, ending its record revenue streak in recent quarters. Analysts had expected $17.10 billion, according to Refinitiv.


Tesla said it converted about 75% of its bitcoin purchases into fiat currency, adding $936 million in cash to its balance sheet.

Musk said the sale was made to increase liquidity as Tesla was unsure how long China’s COVID lockdown would last. Tesla has not sold any of its Dogecoin cryptocurrency holdings.

“This shouldn’t be taken as a verdict on bitcoin,” he said, adding that Tesla was open to increasing its cryptocurrency holdings in the future.

Musk said in May last year that Tesla would not sell its bitcoin.

“The bitcoin losses underscore an important part of Tesla’s investment case – its eccentric owner. While Musk’s impressive innovation has served the company well, his personal flair is beginning to raise governance questions,” said Laura Hoy, analyst at Hargreaves Lansdown.

(Reporting by Hyunjoo Jin in San Francisco and Nivedita Balu in Bengaluru; Editing by Anil D’Silva, Peter Henderson, Matthew Lewis, Leslie Adler and Himani Sarkar)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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