Tesla’s actual profits were much higher than estimates from analysts despite a series of price cuts on some models that reduced the amount of revenue per vehicle sold.
Tesla (TSLA) reported adjusted earnings of $3.1 billion, or 91 cents a share, an increase of 20% from the second quarter last year. Analysts had forecast earnings of 82 cents a share.
Its profit margin of 18.2%, though smaller than they were last year due to the price cuts, also came out better than expected. Forecasts had put it at 17%
Tesla’s profit margin was 25% a year ago, and the EV maker reported a 19.3% profit margin in the first quarter when it started implementing the price cuts.
Automotive revenue excluding revenue from the sale of regulatory credits increased by 47%. But that was far less than the 83% jump in the number of vehicles sold, a sign that Tesla continues to drive greater demand for its cars through lower prices.
Tesla was forced to reduce the price of some of its electric cars due to rising competition from other EV makers, rising interest rates – which has driven the cost of purchasing the cars beyond the reach of buyers, as well as other economic uncertainties.
“Our operating margin remained healthy… even with price reductions in Q1 and early Q2,” the company said in a statement. It said it achieved this with ongoing cost reduction efforts, the continued production ramp-ups at factories in Germany and Texas that opened last year, and strong performance in its other businesses, including energy and services.
“The challenges of these uncertain times are not over, but we believe we have the right ingredients for the long-term success,” the company’s earnings statement said.
Tesla Stock Down
However, despite the release of the favorable finance report, Tesla stock did not spike but rather fell when the company’s management talked with investors.
“We’re in turbulent times,” said CEO Elon Musk on the company’s earnings conference call.
Despite beating estimates, Tesla still has to contend with the issue of declining profits as well as sales of new cars, in the face of high interest rates, which affects all EV makers too.
Operating profit margins dipped below 10% for the first time since the first quarter of 2021. Operating profit margins came in at 14.6% in the second quarter of 2022. Lower vehicle prices, higher costs for battery production, and a weaker U.S. dollar were responsible for the margin drop.
The average price of a Tesla vehicle in the second quarter settled at about $45,000, slightly lower from the first quarter and down from almost $56,000 in the second quarter of 2022.
CFRA analyst Garrett Nelson called the release uneventful in a Wednesday report and rated the shares Buy.
Tesla shares closed at $291.26, down 0.7% in regular trading while the S&P 500 closed up 0.2%. The Nasdaq Composite was flat.
Tesla had a blow on its “full self-driving” (FSD) technology, when it recalled all 363,000 US vehicles with its FSD software after the National Highway Traffic Safety Administration, discovered that it “led to an unreasonable risk to motor vehicle safety based on insufficient adherence to traffic safety laws.”
Elon Musk in response on Wednesday said that cars in FSD mode are safer than cars driven by humans, adding that FSD mode will only keep keeps getting better because it has so much data collected from cars being driven in FSD mode. He said so far 300 million miles have been driven in FSD.
“That 300 million-mile number is going to seem small very quickly. It will soon be billions of miles and tens of billions of miles,” he said. “And that FSD will go from — from being as good as a human to then being vastly better than a human. We see a clear path to full self-driving being 10x safer than the average human driver.”
“I’m the boy who cried FSD. But I think we’ll be better than humans by the end of this year. That’s not to say we’ll be approved by regulators,” he said. “I’ve been wrong in the past. I may be wrong this time.”
Tesla leads other vehicle manufacturers in full self-driving (FSD) technology which major automakers are introducing as driver-assist options like keeping cars at a safe distance from the cars in front of it them and automatic braking to avoid obstacles. However, Tesla’s FSD comes with an additional $15,000 price tag.