Tesla is facing heightened scrutiny as it continues to set ambitious goals in autonomous driving and robotics, all while its profit margins dwindle.
Tesla revealed that its adjusted operating margin for the second quarter of the year has reached a three-year low, declining from 18.7% to 14.4% year-over-year. This marks the fourth consecutive quarter of margin reduction for the company.
Additionally, the company’s automotive gross margin, excluding regulatory credits, came in at 14.6%, below the anticipated 16.29% estimate from a survey of 20 analysts by Visible Alpha.
In the second quarter, Tesla posted a net income of $1.48 billion on revenue of $25.5 billion, which included $890 million generated from regulatory credits.
The company is grappling with escalating expenses related to investing in the artificial intelligence infrastructure deemed essential by Musk for upgrading Tesla’s electric vehicles to self-driving capabilities, as well as for the development of humanoid robots capable of performing tasks in factory settings and beyond.
Moreover, Tesla has experienced a decline in deliveries of its most popular electric vehicles this year, prompting the company to slash prices and introduce incentives such as low-interest loans to stimulate demand.
The drop in operating income was attributed partially to a decrease in the average selling price and reduced sales volumes of its flagship electric vehicles. Automotive revenue experienced a 7% decrease compared to the previous year, marking the second consecutive decline, amidst heightened competition, particularly in the Chinese market.
In extended trading on Tuesday, Tesla’s shares plunged by approximately 8% to $227.23. By the market close, the shares were marginally down by less than 1% for the year, contrasting with the Nasdaq, which had surged by 20% over the same period.
In April, Tesla initiated a five-year, zero-interest loan program aimed at boosting sales of its electric vehicles in China. Originally set to conclude by the end of July, the company extended the offer on Tuesday, as reported by CnEVPost, a Shanghai-based electric vehicle news site.
Similar financing options were introduced in Germany, where Tesla’s sole European car manufacturing facility is located. The deals included 0% financing over a four-year period for customers purchasing the new Model Y Long Range All-Wheel Drive during the quarter.
Additionally, in May, Tesla provided a financing plan with a 0.99% annual percentage rate (APR) in the U.S. for some Model Y purchases, offering terms ranging from three to six years.
As Tesla navigates these challenges, Guggenheim analyst Ronald Jewsikow, who advises selling Tesla shares, cautioned investors in a pre-earnings report note titled “Do Earnings Matter?”, predicting that the company’s automotive gross margin could fall short of expectations due to significant discounting initiatives.
