Elon Musk is still pretty sure he can sacrifice Tesla’s margins now for better ones at some nebulous later date when full self-driving is – in theory – fully integrated into the automaker’s vehicles. Reuters reports that the plan could end up doing two things: intensifying the electric-vehicle price war and irking investors.
On July 20th, Tesla’s stock fell nearly 10 per cent during trading hours to about $263 as Musk reportedly signalled there was no end in sight for price cuts that have sent the Austin, Texas-based company’s margins to a four-year low. The CEO apparently said that these short-term variances in gross margin and profitability are “minor relative to the long-term picture,” and “autonomy will make all of these numbers look silly.”
Now, Reuters says investors are questioning whether it’s actually worth sacrificing current profitability for technology that Musk has been promising is right around the corner for years with very few returns. Keep in mind, Tesla’s Full Self-Driving Beta program is being looked at heavily by regulators in the U.S. after a number of severe car crashes. Despite all this, Musk still thinks FSD could one day account for most of Tesla’s value. At the same time, he feels the tech would give the company an edge over its rivals as they try to make its EV operations profitable.
In the second quarter of 2023, the company’s automotive gross margin – excluding regulatory credits – fell to 18.1 per cent from 19 per cent in the first quarter, according to Reuters. For those keeping score at home, it works out to a 26 per cent decline from just one year ago.
The outlet reports that analysts say the company’s margin issues would likely weigh on the stock – even though it has more than doubled this year because of the growing adoption of Tesla’s proprietary EV charging system.
Reuters says Tesla saw a spike in the usage of FSD Beta in the second quarter, and cumulative miles driven using the technology is now over 300 million miles. This, according to the company, is just the beginning.
Reportedly, Tesla is planning to spend over $1 billion through next year on Doko – its supercomputer that is meant to train AI models for autonomous vehicles. It’s slated to go into production this month. Despite this notion, a whole lot of challenges still remain, including price.
Analysts at Wells Fargo say FSD adoption could be hurt by the very fact it costs a whole lot of money, despite the richest person in the world saying things to the contrary. At $15,000 per vehicle, the program works out to be a really high percentage of the car’s total cost, depending on the model.
“Without a crystal ball or having access to all the data Tesla has at its disposal, it is pretty impossible to guess when FSD will be achieved,” Danni Hewson, AJ Bell financial analysis head, told Reuters. “The real question is how long it would take to get sign-off from regulators, which is likely to take some time amid all the obvious safety concerns.”