Elon Musk Spills the Beans on Tesla’s Future. Elon Musk conflicts with Wall Street. The billionaire’s flagship firm, Tesla, announced first-quarter numbers, prompting the argument. The company’s success in producing its Model Y SUV is crucial to its fortune. Musk is the largest single investor in Tesla.
The disagreement centers on Musk and Tesla’s decision to lower prices this year. This brand’s target demographic in the past comprised more affluent city dwellers, eco-conscious individuals, and those with higher-than-average disposable incomes.
Compared to Mercedes-Benz (DMLRY), BMW (BMWYY), and Porsche (POAHY), Tesla (TSLA) – Get Free Report appears to be more of a competitor of Ford (F) – Get Free Report and General Motors (GM) – Get Free Report.
Read more: The reason Netflix didn’t immediately crack down on password sharing.
The Austin automaker has reduced prices at least six times in the past four months, including twice this month. After considering the $7,500 federal tax credit, the Model Y SUV, the best-selling EV in the world, is now cheaper than the Ford Mustang Mach-E.
Instead of Mercedes, Ford is Tesla’s main competitor.
Many shareholders and market watchers worry that this move will hurt Tesla’s bottom line. These enormous profit margins are pretty unusual in the auto industry, but they have been instrumental in propelling Tesla to its current position as the world’s tenth most valuable corporation. The market cap for Tesla was over $500 billion as of the latest check, and it was over $1 trillion in early 2021.
Investors and industry watchers think Tesla is losing momentum to rivals because it is sacrificing profit margins to stay at the forefront of the electric vehicle market. More options are available to prospective buyers of electric vehicles now compared to two years ago. According to observers, the premium once associated with Tesla’s significant market share is no longer justified.
Executives at Tesla counter that making electric cars more affordable to the general public will increase their popularity.
Musk told analysts and investors on April 19 that “we’ve taken the view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin.”
It’s tough to predict what the profit margin will be. When asked for insight into the new margin range the automaker should expect, the billionaire responded, “It depends on the macroeconomic environment.”
“A rate cut from the [Federal Reserve] would do wonders for consumer spending. If not, consumers will have to pay more interest when purchasing a vehicle.
CFO Zachary Kirkhorn added, “What happens to margins over the next couple of quarters only matters in the context of what that means for our ability to reinvest into 2024 and 2025.”
Profitability for Tesla in the Future Depends on Full Autopilot
Musk has repeatedly said that Tesla’s product would become a cash machine. Thus, he is concerned with sales volume rather than profit margin.
Musk has staked much of Tesla’s future on Full Self Driving, the company’s semi-autonomous driving system.
This $15,000 option is intended to make Teslas capable of driving themselves. Without a doubt, Tesla will have a greater chance to increase the price of the product and the money it earns as the technology gets closer to enabling accurate autonomous driving.
Musk thinks the business might make money by offering the service to its rivals.
“People still don’t understand the implications of FSD,” the techie king, as he is called internally, tweeted on April 25. He seems shocked that investors and his critics did not factor in Musk’s comments about Full Self Driving on April 19 when evaluating Tesla after the results were released.
We have no intention of engaging in any price-based competitive harm to our rivals. Honestly, we don’t give our competitors much of a second thought. We only care if customers buy and like driving our automobiles. The CEO expressed concern about whether or not customers “can afford our cars and things like improving service” last week.
He continued, saying that Tesla was planning autonomous vehicles because the next generation of automobiles will have to be worth “a whole lot more in the future than it is now.”
Even if Tesla makes no money on the sale, it will still own the asset’s net present value in future cash flows.
The ability to drive autonomously is often seen as the next big thing in vehicular transportation, and in this regard, Tesla appears to be ahead of the competition. The automaker cautions that the currently activated Full Self-Driving technologies do not render the vehicle autonomous on its website, but that they “are designed to become more capable over time.” Drivers must keep their hands on the wheel and be ready to take control with the features turned on at any time.
With Full Self Driving enabled, the vehicle may drive itself in various situations. However, skeptics argue that the system isn’t foolproof. About 40 instances involving the technology are currently being looked at by the U.S. National Highway Traffic Safety Administration.
