![[Gamma] Scalping Please](https://ibkrcampus.com/wp-content/smush-webp/2024/04/tir-featured-8-700x394.jpg.webp "[Gamma] Scalping Please")
What’s going on?
Tesla’s price-cutting tactic has slashed the EV maker’s margins, but Musk seems willing to pay the price for ultimate supremacy.
What does this mean?
Tesla’s slimmed-down prices might’ve hoisted sales up by 24% last quarter – but as expected, those discounts ate into profit margins big time. A host of profitability measures dropped to their lowest in years, well below the record highs of last year. In fact, the firm’s profit margins suffered even more than some analysts’ already reduced forecasts had predicted. But Musk’s so sure that lower profit in the short run will be outweighed by heftier market share in the future that he’s set to double down on this strategy. Mind you, with early results showing price cuts have only slightly lifted the number of cars Tesla’s sold this year so far, skeptical investors still sent shares down 6%.
Why should I care?
The bigger picture: Method to the madness.
In fairness, Tesla’s industry-leading margins do give the firm a lot to play with: the EV maker’s operating profit margin sat at 11.4% last quarter, casting a Cybertruck-sized shadow over rivals General Motors’ 6.6% and Ford’s 4% in 2022. What’s more, governments around the world are pushing for stricter emission restrictions, which means putting more EVs on the road. That could make it the right time for Tesla to assert its dominance, later leveraging that sway to profit from rolling out more autonomous and robotaxi features. Layer on Musk’s reassurance that orders are now outpacing production, and Tesla’s plan could soon see it relax on cruise control.
Zooming out: Back against the wall.
French carmaker Renault isn’t being drawn in yet, though, saying this week that it has no plans for drastic price cuts on its EVs. But some analysts reckon Europe’s third-biggest EV brand might have to cave to stay in the game – after all, Tesla’s Model 3 is now cheaper than Renault’s electric Megane in France.
—
Originally Posted April 20, 2023 – Road Domination
Disclosure: Interactive Brokers
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Finimize and is being posted with its permission. The views expressed in this material are solely those of the author and/or Finimize and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Join The Conversation
If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.