Tesla’s high operating margin took a hit in the second quarter of 2023 in part due to recent Model 3 and Model Y price cuts, but Elon Musk has backed the strategy to the hilt in turbulent times.

    The electric car (EV) leader’s latest financials showed an operating margin of 9.6 per cent for the second quarter of 2023 (Q2), compared to 11.4 per cent in Q1 of 2023, and 14.6 per cent in Q2 last year.

    It came on the back of operating income decreasing slightly year-on-year (YoY) to $2.4B ($3.5B AUD), and by 38.5 per cent over Q4 of last year. Tesla reported an overall gross margin of 18.2 per cent for the April-June period, the lowest in 16 quarters, but still ahead of the industry average,

    It attributed the result to factors such as the reduced average selling price of its vehicles, the cost of ramping output of its 4680 battery cells, operational expenses of the Cybertruck as it finally nears production, and negative foreign exchange impacts.

    Tesla has sought to strike a killer blow to rivals this year given its ability to produce EVs at scale, cutting prices in the US, China and Australia (among other regions). There’s also been a need to clear inventory as production at its plants ramp.

    The company made a record 480,000 cars in Q2 and delivered 466,000, with overall revenues from its automotive, energy generation and storage, and services operations nudging a record $25B ($37B AUD).

    “One day it seems like the world economy is falling apart, next day it’s fine. I don’t know what the hell is going on,” Musk told analysts on a conference call, as reported by Reuters. “We’re in, I would call it, turbulent times.”

    “… I think it does make sense to sacrifice margins in favor of making more vehicles,” he added.

    MORE: Tesla Australia cuts its prices to new lows

    Earlier this month Tesla joined 15 Chinese automakers in signing a pledge to effectively end an electric car price war there, and promote “core socialist values”.

    The company said it was installing requisite production equipment for Cybertruck at Gigafactory Texas ahead of output commencing this year. It also noted that Berlin-Brandenburg has kicked off standard range Model Y production, and said the Shanghai plant that supplies Australia “has been successfully running near full capacity for several months”.

    “In conclusion, we are focusing on cost reduction, new product development that will enable future growth, investments in R&D, better vehicle financing options, continuous product improvement and generation of free cash flow,” it added.

    “The challenges of these uncertain times are not over, but we believe we have the right ingredients for the long-term success of the business through a variety of high potential projects.”

    MORE: Tesla defies tough competition and economics to deliver record quarter
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    Mike Costello
    Mike Costello is a Senior Contributor at CarExpert.
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