February 21, 2024

Tesla reported a rise in profit in the second quarter after the company under Elon Musk slashed prices due to increased competition and higher borrowing costs for car buyers.

Revenue from April to June was $2.7 billion, up from $2.5 billion in the first quarter of this year and $2.3 billion in the second quarter of 2022, the company said Wednesday. Sales rose 7% from the first quarter to $25 billion.

Tesla said lower average selling prices and the cost of producing new pickups weighed on profits.

Tesla may have to cut prices further, Musk said, noting that higher interest rates make it harder for people to afford new cars.

“We have no control over macroeconomic conditions,” he said on a conference call with analysts and investors. “If macroeconomic conditions are stable, prices will remain stable. If macroeconomic conditions are unstable, we will have to lower prices.”

Shares of Tesla fell about 4% in after-hours trading on Wednesday.

An intensifying price war has made electric vehicles cheaper but has weighed on profits across the industry. Wait times for vehicle deliveries have disappeared, and dealers who sold cars for a premium a year ago are now offering thousands of dollars in discounts.

Tesla is one of the few companies making money from electric vehicles, dominating the U.S. and European EV markets. As a result, the company is in a better position than other automakers losing billions on EVs.

But Tesla has had to slash prices to attract buyers and defend its market share, resulting in lower profit margins on car sales. The company made 59% of electric vehicles sold in the U.S. in the second quarter, down from 65% a year earlier, according to Kelley Blue Book.

The year ahead could determine whether Tesla can maintain its dominance. The company said last week that it has started production of the Cybertruck, a futuristic pickup that will go on sale later this year, entering one of the most popular and profitable parts of the U.S. auto market. The Cybertruck will be Tesla’s first new passenger vehicle since the Model Y in 2020.

Unlike sport utility vehicles, which had little competition when the Model Y arrived, the Cybertruck enters a crowded field. Ford Motor Co. offers an electric pickup, the F-150 Lightning, while upstart automaker Rivian sells an electric pickup called the R1T. General Motors will soon start selling an electric version of the Chevrolet Silverado pickup.

Ford said on Monday it would cut prices on the Lightning by as much as $10,000 to signal increased competition.

Ford said the price cuts are possible because the company has expanded its assembly lines to make more trucks and because prices for battery raw materials have fallen. But analysts said the cuts reflected an oversupply of electric vehicles. Ford may also try to grab market share before the Cybertruck and electric Silverado hit the market in large numbers.

Rivian is also reportedly a stronger competitor after overcoming production issues. Its R1T pickup outsold the electric F-150 in the first six months of the year.

Rivian CEO RJ Scaringe acknowledged in an interview last month that establishing a smooth production operation is “definitely challenging.” But he added, “We’ve passed the peak of pain and are now on a more predictable upswing.”

In Europe, Tesla is closing in on established automakers such as Fiat as it ramps up production at a factory near Berlin where it plans a major expansion. But Tesla also faces growing competition in Europe from Chinese automakers such as BYD and SAIC, which sell electric vehicles under the MG brand. In China, Tesla has had to slash prices to fend off competition from domestic automakers with newer models.

All automakers are dealing with rising interest rates, which have increased monthly loan payments for car buyers. Some banks are no longer willing to lend to borrowers with poor credit histories.

Tesla also sells solar panels and batteries for home and grid energy storage. Fans of the company often see these businesses as underappreciated sources of growth.

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