Elon Musk Sacrifices Margins now and Bets on Tesla’s Self-Driving Tech Noting “major OEM” Interest

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Filed under Automotive, EV News, News, Technical, Tesla

In recent news, Tesla CEO Elon Musk revealed that a “major OEM” has expressed interest in licensing Tesla’s software and hardware for vehicle autonomy. While the automaker’s name was not disclosed, Musk compared this interest to previous agreements made with other automakers who utilized Tesla’s Supercharger network.

It’s important to note that Tesla’s Full Self-Driving software and hardware do not currently make their vehicles fully autonomous. Instead, they are classified as advanced driver-assistance features, similar to those offered by other automakers, requiring a human driver to remain in control at all times. Despite facing criticism for repeatedly predicting the software’s imminent autonomy, Musk reiterates his belief that it will be able to drive autonomously as safely as a human driver by the end of the current year.

On the financial front, Musk stated during the earnings call that Tesla is willing to sacrifice profits for the sake of volume growth. He believes that future sales of Full Self-Driving software to Tesla owners will eventually make the company significantly more profitable than it is today.

This willingness to sacrifice margins has enabled Tesla to cut vehicle prices earlier this year. Consequently, the company’s gross margin in the second quarter declined to 18.2 percent from 25 percent in the same period the previous year. Despite this, Tesla’s industry-leading margins have allowed the company to remain highly profitable, while putting pressure on competitors like Ford and GM, both of whom have been losing money on their EV offerings.

While Tesla is gaining an edge on price, automotive analysts argue that legacy brands are still catching up in the EV race. Many of these brands are expected to use incentives rather than price cuts to stimulate demand. For instance, Ford recently adjusted the price of its Mustang Mach-E and F-150 Lightning pickups, possibly in response to competition from the Rivian R1T, which has been gaining ground in the EV pickup segment.

Addressing Tesla’s upcoming Cybertruck, Musk predicts strong demand once the company achieves volume production next year. He emphasizes that the Cybertruck boasts innovative technology and a unique design that sets it apart from other vehicles.

In terms of financial performance, Tesla reported a surge in net income for the second quarter, reaching $2.7 billion, a 20 percent increase. Total revenue, including its solar business, also saw a significant gain of 47 percent, totaling $24.9 billion. Vehicle production rose by 86 percent, resulting in nearly 479,700 vehicles produced, while deliveries increased by 83 percent to 466,140 vehicles.

On an adjusted basis, Tesla’s earnings per share stood at 91 cents, surpassing analysts’ expectations of 82 cents per share, according to Refinitiv IBES data.

Source: AutoNews (subscription required)


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