Tesla’s (TSLA.O) $1 trillion question always has been whether it’s unique, or if it was just ahead of the pack. The company, now worth $760 billion after sliding out of the 13-figure valuation club, has endured a nearly year-long campaign of slashing prices, losing U.S. market share and ceding much of its lead on Chinese rival BYD (002594.SZ), (1211.HK). It leaves boss Elon Musk facing the intensifying challenge of shifting back into a higher gear.
The Model Y maker’s gross and operating profit margins were once the envy of the entire American automotive industry. As Tesla began rolling more vehicles off the production line than it could sell, however, Musk repeatedly offered discounts to rev demand. Even setting aside tough financial comparisons because of the factory shutdowns needed to retool its best-selling vehicles, progress has been sluggish. Sales have lagged production by 83,000 cars since the third quarter of 2022.
The effect on profit has been fast, though. Tesla’s gross margin at its core automotive business, adjusting for regulatory credits, has fallen nearly in half, to 16.3%, according to the latest quarterly results released on Wednesday. Its now sub-8% operating margin is in line with rivals General Motors (GM.N) and Ford Motor (F.N), at least before the recent labor strikes at the Detroit duo.
Most of Tesla’s competitors keep losing money on every electric car they sell, but they’re also catching up in other ways. Tesla sold just a hair under half of all U.S. battery-powered rides in the third quarter, according to Cox Automotive, down from 75% in early 2022. And although BYD faces a roadblock to the United States, it came within 1% of matching Tesla’s worldwide pure-electric sales in the three months to September.
Musk is refueling. His revised car designs should be cheaper to make once factories are fully humming. The long-awaited Cybertruck is due later this year, opening the valuable pick-up segment. And battery costs in China may be in long-term decline, with cheaper lithium-phosphate batteries like those supplied to Tesla’s Shanghai operation tumbling to $70 per kilowatt-hour in September, from well over $100 earlier in the year, according to research outfit Intercalation. The company now depends heavily on those features for any turbocharge.
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CONTEXT NEWS
Tesla said on Oct. 18 that it generated $23.4 billion in revenue in the third quarter, slightly less than what analysts were expecting, according to LSEG data. The electric-car maker’s gross margin at its core automotive operations, adjusted for the sale of regulatory emissions credits, fell to 16.3% from 26.8% a year earlier and a high of 30% in the first quarter of 2022.
