Tesla’s Profit Margin Hit Hard by EV Discounts and AI Investments!

Tesla Inc. is experiencing a squeeze on its profit margins due to aggressive price cuts on its electric vehicles (EVs) and substantial investments in artificial intelligence (AI).

The company’s adjusted operating margin for the second quarter of 2024 dropped to 14.4%, the lowest in three years, down from 18.7% a year earlier. This marks the fourth consecutive quarter of margin contraction.

Tesla has offered huge incentives and discounts on its EVs to combat declining sales. The company reported $1.48 billion in net income on $25.5 billion in revenue, including $890 million in regulatory credits.

I have zero doubts in TSLA and Elon I’ll just buy any dip

— Twosmokesrule (@2smokesrule) July 24, 2024

Despite these efforts, automotive revenue fell by 7% from a year earlier, marking the second straight decline due to intensified competition, especially in China.

CEO Elon Musk has emphasized the importance of AI and robotics for Tesla’s future, making hefty investments in these areas.

Tesla’s operating expenses soared by 39% year-on-year to $2.97 billion in the second quarter, with $600 million allocated to AI infrastructure.

Their accounting is byzantine even by byzantine standards.

Is Elon actually the richest man alive or does only he have the most debt? I’m not sure even he knows the answer to that question.

— SidFalcoReturns (@SidFalcoReturns) July 24, 2024

Musk highlighted the company’s commitment to developing its Dojo supercomputer to compete with Nvidia’s GPUs, which are essential for advancing Tesla’s autonomous driving capabilities.

Despite these strategic investments, Tesla’s EV deliveries have been declining. The company delivered 443,956 EVs in the second quarter, surpassing Wall Street estimates but still representing a 4.8% year-on-year decline.

This drop is partly due to increased competition in China, where local manufacturers like BYD are gaining market share with more affordable and diverse EV offerings.

Compared to who? How are the big 3 automakers profits going?

— J.P. (@jlpcanton) July 24, 2024

To stimulate sales, Tesla has introduced various incentives, including zero-interest loans in China and 0.99% APR financing deals in the U.S.

These measures are designed to make Tesla’s vehicles more affordable amidst sustained high interest rates.

Vaibhav Taneja, Tesla’s chief accounting officer, stated, “Affordability remains top of mind for customers,” reflecting the company’s focus on maintaining competitive pricing.

EV has a hard time. AI is a reasonable investment.

— Jameson (@Jameson34365076) July 24, 2024

However, the aggressive discounting strategy has raised concerns among investors about Tesla’s short-term profitability.

Guggenheim’s Ronald Jewsikow, who advises selling Tesla shares, predicted that the company’s automotive gross margin would miss estimates due to the extensive discounting actions.

This prediction was borne out as Tesla shares fell by about 8% in extended trading following the earnings report.

That is with $7500.00 EV credit . I am wondering what will happen after Jan. 2025 with no government help.

— middleman (@alex_tehranian) July 24, 2024

Looking ahead, Tesla is pushing forward with its ambitious plans for AI and autonomous driving. Musk reiterated the company’s focus on long-term autonomy goals, despite the current financial challenges.

He announced that Tesla will hold a robotaxi unveiling event on October 10 and expects to offer autonomous rides by next year. Musk also highlighted the potential of Tesla’s Optimus humanoid robot project, which he believes could enhance the company’s value.

While Tesla is grappling with immediate financial pressures, its long-term strategic investments in AI and robotics could position it strongly in the future.

The numbers are too inflated and they’re not true real numbers they’re made up.
Tesla’s numbers could be worse than what they really are you can never tell what Elon Musk is hiding

— Staystrong Staypositive (@Staystrong72522) July 24, 2024

Investors and industry observers will need to balance the short-term financial concerns with the potential long-term gains from these innovative projects.

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