Tesla: No Margin for Error

Tesla: No Margin for Error

21 July 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
Lunar BCI WW Flexible Fund 141.43 171.24 170.91 20.84%
JSE ALSI 73 049 77 751 76 827 5.17%
NASDAQ Composite 10 467 14 114 14 033 34.07%
S&P 500 3 840 4 505 4 536 18.13%
Prime Lending Rate 10,50% 11.75% 11.75% 11.90%
USD/ZAR 16,98 18.08 17.94 5.65%
EUR/ZAR 18,44 20.32 19.96 8.24%
Brent Crude ($’barrel) 85,95 79.58 80.61 -6.21%

Source: Iress

Weekly Stocktake with Danyaal

Tesla: No Margin for Error

The Earnings Season is underway in the US, and various companies have begun releasing their quarterly results. Tesla, led by Elon Musk, recently disclosed its Q2 2023 performance. Tesla recorded revenue of $24.9 billion for the quarter, marking a 47% increase compared to the same period last year. Additionally, the company’s vehicle deliveries during Q2-2023 reached 466 thousand units. This was up 83% compared to the same quarter last year. Tesla is actively pursuing market share, but this growth is coming with certain costs.

Over the past two quarters, Tesla has been reducing the average selling price of its vehicles, primarily due to a decline in overall demand within the US market and greater competition in China. Despite witnessing enhanced efficiency and increased vehicle production at their factories in the US, Shanghai, and Berlin; Tesla is facing challenges in maintaining the same profit margins as seen in the corresponding quarter of the previous year. While the revenue experienced a 47% growth, the gross profit only managed to grow by a modest 7%. The gross margin was already relatively tight compared to other industries. Specifically, in Q2-2022, Tesla’s gross margin stood at 25%, but for the most recent quarter, it dipped to 18.2%. This signifies the impact of their pricing strategy and the current market conditions on their profitability. Tesla’s share price fell approximately 10% since they released their results.

Tesla finds itself in a fascinating position within the market. With their vehicles priced towards the upper-income segment, they could have pursued a strategy of limiting supply to create a sense of exclusivity, as is common in luxury brands. However, Tesla has chosen a different path. Instead of focusing solely on exclusivity, they are striving to be more “innovative” than their competitors. Their approach involves allowing their cutting-edge technology and innovations do the talking. Tesla was one of the first companies to produce autonomous vehicles to the general public at scale.

Another factor at play is Elon Musk. While some people strongly dislike him, others are huge admirers. He has cultivated a cult-like following of individuals who are willing to buy practically anything he endorses. This devoted fan base plays a crucial role in boosting Tesla’s sales and brand loyalty. However, his polarizing nature also attracts criticism and scepticism from certain quarters. Overall, Elon Musk’s influence on Tesla’s success is complex, shaping the company’s unique position in the automotive industry.

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