Tesla CEO, Elon Musk, announced on Wednesday that the company will further cut prices on its electric vehicles (EVs) amid what he called “turbulent times.” This comes as Tesla faces increasing competition from other automakers and economic uncertainty in various markets.
Tesla has already reduced prices multiple times in the United States, China, and other markets since late last year. The company has also increased discounts and incentives to reduce inventory. Musk explained that these price cuts have affected Tesla’s automotive gross margin, an important industry indicator, but that the company is willing to sacrifice margin for volume growth.
Musk stated, “I think it makes it does make sense to sacrifice margins in favor of making more vehicles,” indicating that if macroeconomic conditions remain unstable, Tesla will likely need to continue lowering prices. For example, earlier this year, Tesla slashed the price of its Model Y long-range version by 25% to $50,490 in the United States.
Tesla’s quarterly automotive gross margin, excluding regulatory credits, fell to 18.1% in the second quarter, down from 19% in the first quarter and significantly lower than the 26% reported a year earlier. The company’s overall gross margin for the April-June period was 18.2%, the lowest in 16 quarters.
Despite the price cuts impacting profitability, Tesla set a record for deliveries with 466,000 vehicles in the April-July period. Lower pricing, along with government tax breaks for EV buyers, drove the increased demand.
In addition to the price cuts, Musk announced that Tesla is in talks with a major original equipment manufacturer to license its “full self-driving” (FSD) software. FSD does not make the car fully autonomous and requires driver supervision. However, Tesla has faced regulatory scrutiny following several crashes involving its vehicles. Last year, Musk stated that Tesla would be “worth basically zero” without achieving full self-driving capability.
Tesla’s stock initially remained flat after hours but dropped nearly 5% following Musk’s comments. Despite this, the company’s stock has experienced significant growth this year, rising 60% since its first charging technology deal on May 25 and increasing 138% overall.