Automotive News Europe — 2023-10-19
Automotive Industry
Elon Musk is dialing back expectations for Tesla as years of rapid expansion collide with rising interest rates and a more cost-conscious consumer.
After months of persistent price cuts, Tesla’s margins have fallen well below the floor once set by its recently departed chief financial officer.
The company is “ruthlessly” cutting internal costs to keep up, according to vehicle engineering chief Lars Moravy.
But an unpredictable economic environment has Musk feeling “paranoid,” and as a result, Tesla is slow-walking its newest factory in Mexico.
“Tesla is an incredibly capable ship,” Musk said. “We are not going to sink, but even a great ship in a storm has challenges.”
Musk’s comments came as Tesla announced weaker-than-expected third-quarter earnings. He also lamented high interest rates, two ongoing wars and a ramp-up period for Tesla’s new Cybertruck that he suggested will be similar to the “production hell” the company endured in the past.
Cybertruck deliveries
The first stainless steel Cybertruck will be handed over on Nov. 30, Tesla said, about two years behind schedule.
Musk warned it will not be a significant contributor to cash flow for at least 18 months.
“We dug our own grave with Cybertruck,” Musk told analysts. “Special products that come along only once in a long while are just incredibly difficult to bring to market, to reach volume, to be prosperous.”
Tesla is even willing to ditch stickers and QR codes on its car parts if it means saving a few pennies of cost, Musk said.
The company missed both earnings and sales expectations for the quarter, reporting that profit excluding some items fell to 66 cents a share, short of the 74 cents that Wall Street analysts estimated.
While revenue rose to $23.4 bn, analysts were expecting $24.06 bn.
The company has repeatedly slashed the prices of its cars this year, and Musk has said he is willing to sacrifice Tesla’s profits to protect sales volumes.
Markdowns for its most expensive vehicle, the Model X, have exceeded 30%, making Tesla’s cars more attainable for customers struggling with high inflation and interest rates.
Automotive gross margin excluding regulatory credits, a figure closely watched by investors, slumped to 16.3% in the quarter.
Analysts surveyed by Bloomberg were expecting it to be 17.7%.
The Austin-based company already said it delivered 435,059 vehicles globally in the period, its first quarterly decline in a year, after planned factory downtime slowed production.
Tesla recently launched a refreshed Model 3 sedan in China and Europe.
Musk said Tesla is still planning a vehicle factory in Monterrey, Mexico, but is not ready to go “full tilt” on its construction because of the state of the global economy.
The comments followed weeks of speculation about whether the plant, first announced in March, would be built at all.
“I do not think Mexico is going to be a big part of their delivery growth any time in the next two or three years,” Seth Goldstein, an equities analyst at Morningstar, said in a phone interview after the hour-long earnings call.
Still, Tesla assured investors it’s on track to make and deliver about 1.8 m vehicles this year. The company will have to pick up the pace in the fourth quarter to meet that goal.