Tesla’s ever-changing prices have puzzled analysts and investors alike in recent months, with many wondering how deep are the company’s profit margins.
While that’s something only Tesla insiders know, it appears that the EV maker wouldn’t mind going further than just reducing margins via price cuts. On the company’s Q1 2023 earnings call on April 19, CEO Elon Musk said Tesla is willing to sacrifice profit for higher volumes in the short term, reiterating the carmaker’s commitment to price cuts.
“We’ve taken the view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk said, according to Automotive News.
Investors and analysts asked Musk more than half dozen questions about Tesla’s price cuts after the company slashed prices six times this year alone. According to Insider, one of the questions prompted Musk to make a stunning admission.
He said Tesla could technically even sell its products for “zero profit” and that the company could instead make money in the future through its autonomous software.
“Tesla is in a uniquely strong strategic position because we’re the only ones making cars that technically we could sell for zero profit for now and then yield actually tremendous economics in the future through autonomy. No one else can do that. Not sure how many of you will appreciate the profundity of what I’ve just said, but it is extremely significant.”
He added that Tesla expects its vehicles will be able to “generate significant profit through autonomy” over time, noting that it’s “better to ship a large number of cars at a lower margin and subsequently harvest that margin in the future as we perfect autonomy.”
That said, he reassured investors that Tesla’s margins remain among the healthiest in the industry, even after multiple rounds of price cuts this year for the entire passenger car lineup.
Tesla missed first-quarter forecasts for total gross margin – 19 percent compared with an expectation of 22 percent from analysts – while net income dropped 24 percent to $2.5 billion compared to the previous quarter, despite a record number of deliveries in the first quarter – 422,875.
Musk also said on the call that Tesla’s global production should reach between 1.8 million and 2 million this year, compared to 1.4 million in 2022.
While price cuts may be good for boosting volume, some analysts say they could hurt the brand over time as maintaining brand prestige while simultaneously attempting to grow volume is a tough balancing act in the long term.