Despite profit reductions resulting from repeated price cuts, Tesla affirms that it has no intentions to stabilize the prices of its popular electric vehicles.
Elon Musk’s car company is facing challenges from intensified competition and higher borrowing costs for customers, prompting them to respond by implementing frequent price reductions throughout the year.
In a warning to investors, the company stated that product pricing would continue to undergo changes, either upward or downward. Elon Musk clarified on Twitter that the intention behind lowering prices is to make their products more affordable on a larger scale, rather than initiating a price war.
Tesla reported a 24% year-on-year increase in overall revenue for the first quarter of the year, reaching $23.3 billion (£18.4 billion), driven by higher car sales.
However, profit for the same period declined by 24% compared to the previous year, amounting to $2.5 billion (£2 billion). This decrease was attributed to the impact of price cuts as well as increased costs for raw materials and other commodities.
During a conference call to discuss the results, Elon Musk expressed his belief that prioritizing increased sales, even at the expense of lower profits, was the right decision for Tesla. This strategy sets Tesla apart from other electric car manufacturers, as it has maintained profitability in the industry.
Assuring investors, Elon Musk emphasized that profits would remain robust in the long run. He highlighted the potential for the company’s bottom line to be further strengthened through ongoing subscription payments for supercharging, self-driving capabilities, and other features, even after the initial sale of the vehicles.
Elon Musk confidently asserted, “We are firmly establishing the groundwork for future success.”
It is more advantageous to deliver a significant volume of cars at a lower profit margin and subsequently capitalize on that margin in the future.”
Elon Musk expressed his confidence that Tesla’s profits would continue to rank among the highest in the industry. Despite a general downturn in car sales, Tesla managed to defy the trend, benefiting from the surging demand for electric vehicles.
As competitors introduce their own electric vehicles, Tesla has witnessed a gradual erosion of its market share. Furthermore, despite Tesla’s significant increase in production, there have been instances where production has surpassed deliveries, leading to speculation that demand may not be as robust as anticipated.
The company attributed the production-delivery discrepancy to ongoing delivery delays, which have persisted into the current year. Tesla believes that implementing price cuts will help maintain customer interest, although this strategy runs the risk of upsetting customers who paid higher prices, as evidenced by previous instances of customer backlash over price reductions.
In the first quarter, Tesla achieved nearly 423,000 car deliveries, marking a 36% increase compared to the previous year. However, this represented only a 4% rise from the preceding quarter.
Source : bbc.com