Elon Musk’s big bet that Tesla price cuts could boost sales and profits amid increasing competition and poor economic sentiment appears to be yielding mixed results. Sales jumped and the company beat analyst expectations for net income in the April-June quarter, although the company’s profit margins declined. Tesla shares followed suit in after-hours trading.
The Austin, Texas, maker of electric vehicles, solar panels and batteries reported net income of USD 2.7 billion in the quarter, a 20 per cent increase from a year ago. Earnings per share also rose 20 per cent to 78 cents when measured via generally accepted accounting principles. Total revenue rose 47 per cent to USD 24.93 billion. Analysts, however, tend to focus on Tesla’s own measurement of profit, which excludes stock-based compensation expense. By that measure, Tesla’s net income zoomed to USD 3.15 billion, or 91 cents a share, sharply exceeding average analyst estimates of 80 cents per share according to FactSet. Some analysts had expected profits to fall because of the price cuts. Tesla shares, however, initially stayed flat at roughly USD 292 in after-hours trading immediately following the earnings report, up a smidgeon from their close at USD 291.26. As Tesla executives spoke to analysts in a conference call, shares slipped more than 4 per cent.
Tesla reported strong vehicle delivery numbers on July 2, saying they rose 83 per cent compared to the year-earlier quarter after the company cut prices several times on its four electric vehicle models. Tesla sold a record 466,140 vehicles worldwide from April through June, nearly double the 254,695 it sold during the same period a year earlier. The vast majority of those sales involved Tesla’s popular Model 3 sedans and Model Y crossover SUVs.
But the earnings report provided mixed messages on one of the larger questions facing Tesla: whether the automaker’s discounting strategy can boost sales while preserving its profit margins. Tesla’s operating margin, which represents how efficiently sales are turned into pretax profits, fell to 9.6 per cent in the April-June quarter, down significantly from 14.6 per cent a year earlier. The measure had also declined sharply in the January-March quarter.
