Tesla Q2 Margins Hit Five-Year Low Amid Discount Strategies

Tesla is expected to report a significant drop in its second-quarter margins on Tuesday, marking the lowest point in over five years. Amid these financial pressures, CEO Elon Musk is anticipated to emphasize the company’s future in self-driving technology and AI products.

Impact of Discounts and Incentives:

Over the past two years, Tesla has implemented a series of discounts, price cuts, and incentives, such as cheaper financing options, to boost electric vehicle (EV) sales. These strategies have squeezed margins as sales declined due to customers’ waning interest in Tesla’s aging model lineup.

In April, a memo revealed that Tesla is laying off 10% of its global workforce, further indicating the company’s financial strain.

Focus on Self-Driving Technology:

Investors are eager to learn more about Tesla’s pivot to self-driving technology. Musk announced earlier this year that Tesla’s robotaxi would be unveiled on August 8, but recent reports indicate a delay in incorporating design changes in October.

Wall Street analysts predict Tesla’s automotive gross margin, excluding regulatory credits, will have fallen to 16.27% in the April-June period, the lowest since the first quarter of 2019. This compares to 16.36% in the January-March period and 18.14% in the second quarter of 2023.

Financing Strategies and Long-Term Outlook:

Bernstein analyst Toni Sacconaghi highlighted that Tesla’s discounted financing options during high interest rates effectively act as less visible price cuts. These costs will be gradually realized over the loan’s life, spreading margin pressure into future periods.

Analysts expect margins to bottom out by the end of this year and start to improve next year as the costs associated with ramping up Cybertruck production decrease.

Paul Marino, GraniteShares’ Chief Revenue Officer, emphasized the long-term potential of Tesla’s AI and robotaxi ventures: “AI and robotaxi is such a huge opportunity over the next two, three, five years. So if you’re a long-term believer, you’ll take the margins like your medicine.”