On Thursday, Tesla’s market shares experienced a sharp decline of around 10 percent, driven by Elon Musk’s decision to prioritize superior margins over present margins by integrating full-self driving (FSD) software into Tesla cars.
Despite the fall in gross margins, Musk aims to follow price cuts to compete with other electronic vehicle (EV) manufacturers. However, this move has caused Tesla’s market value to plummet by approximately $90 million.
Gene Munster, a managing partner at Deepwater Asset Management and a Tesla investor, pointed out that the margin outlook may disappoint some investors who were hoping for improved margins this year.
In a statement on Wednesday, Musk downplayed the short-term variations in gross margin and profitability, emphasizing that autonomy would significantly impact Tesla’s numbers in the long run.
According to Reuters calculations, Tesla’s automotive gross margin declined from 19.0 percent in the first quarter to 18.1 percent in the second quarter, marking a steep decline from last year’s 26 percent.
For Tesla, the focus on increasing the number of cars on the roads is crucial to maintaining its dominant share in the US market. This strategy provides vital usage data, which contributes to the development of artificial intelligence models to enhance its self-driving technology.
However, some investors are skeptical about sacrificing current profitability, given Tesla’s history of missed targets and regulatory constraints after reports of crashes involving Tesla vehicles.
Musk remains optimistic that self-driving technology will drive most of Tesla’s value in the future, setting it apart from other EV manufacturers. However, analysts warn that the margin weakness could impact the stocks, which have seen significant growth due to the increasing adoption of Tesla’s charging system this year.
Tesla is currently in discussions to license the FSD technology, and seven analysts are optimistic about a positive outcome, expecting the stocks to be optimized to the maximum.
Nevertheless, financial analyst Danni Hewson at AJ Bell highlights the uncertainty surrounding the timeline for achieving FSD and obtaining regulatory approval. Safety concerns need to be addressed and resolved before the technology can be fully implemented.
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