German Manager Magazin: Tesla: Musk relies on volume instead of margin, quarterly profit collapses, share price slide002440

The electric car pioneer Tesla wants to defend its market share at all costs and accepts a lower profit margin. “It’s better to deliver a large number of cars with a lower rate of return and collect that rate of return in the future as we perfect autonomous driving,” Tesla CEO said Elon Musk (51) when presenting the business figures for the first quarter at an analysts’ conference. The US manufacturer had recently drawn attention to itself with a series of price cuts – which is now leaving its mark on the balance sheet.

Tesla shares fell 6 percent in after-hours trading. “Biting the bullet and sacrificing margins to get sales moving is often the right move, but only if done carefully and not for a long period of time, otherwise the brand is at risk.” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.

In the first quarter, Tesla generated an operating profit margin of just 11.4 percent. In a sector comparison, the company is still far ahead. But in the past six quarters, profitability has been consistently higher.

Even in absolute terms, there was less profit left with more business. Tesla revenue was $23.3 billion in the first quarter, up 24 percent from the same quarter last year. However, net profit fell by almost a quarter to $2.5 billion. Musk stuck to the official delivery target of 1.8 million vehicles this year, not repeating an earlier statement that two million cars would be delivered.

Too dependent on a few models

The global market leader has started a price war on e-cars, which is particularly China rages violently. Also in the USA Tesla has cut prices six times since the beginning of the year. With this, Tesla wants to defend itself against the competition from established car manufacturers, who are bringing more and more electric cars onto the market. In China, there is also the rise of companies like BYD, the new number one in the world’s most important car market. Tesla has recently increased its deliveries, but at 4 percent the increase compared to the previous quarter was significantly lower than before.

Analysts also see homegrown problems at Tesla. “Our experts say that Tesla is too dependent on the Model 3 and Model Y,” said Orwa Mohamad, an analyst at third bridge. Investors waited for new products. “Tesla is at risk of losing market share to other brands with more innovative products in the $40,000 to $60,000 price range,” he said. Among other things, the company needs an SUV to replace the Model X and a smaller, cheaper Model 3 in the volume segment.

Tesla would like to introduce the Cybertruck this year; Musk announced an event for the third quarter. In January, he promised the start of production for the summer, but series production is not expected until 2024. The vehicle is a niche product, Mohamad said: “The Cybertruck is a very difficult vehicle to produce, with its stainless steel body and a new platform. Its design, positioning and price will limit demand.”

In addition, the competition is catching up. In the meantime, established car manufacturers such as Ford or Volkswagen competitive electric cars on offer. Musk has announced a $25,000 car but hasn’t said when it will hit the market. In the important entry-level segment, the Chinese manufacturer BYD presented a vehicle for 11,600 dollars at the auto show in Shanghai – in the People’s Republic BYD has recently left the competition far behind.

Go to Source