Tesla maintains one of the best operating margins in the industry despite several rounds of price cuts launched since January. The company right now made the decision to bet on selling more cars rather than higher margins.
Tesla has always been distinguished by the fact that it has made extraordinary decisions, undergoing measures atypical for the automotive industry. This has led the company to developing at a rapid pace, achieving unique success, and bypassing all competitors with many years of experience. Tesla released its Q1 2023 results on Wednesday and once again provided guidance to investors on the direction of its work to maximize future success.
Elon Musk notes that thanks to the company's efforts, Model Y has become the best-selling vehicle of any type in Europe and the best-selling non-pickup vehicle in the United States. Although Tesla experienced a lot of problems in production and delivery, the manufacturer's teams were able to achieve this impressive result.
Such success comes even as the current global macroeconomic environment remains uncertain. In such a situation, people prefer not to make large purchases, such as cars. The price cut that Tesla launched in January aims to encourage buying by making its cars affordable for a diverse segment of the population. Musk noted that while the company cut prices significantly at the start of the first quarter, operating margins remain among the best in the industry.
Tesla's CEO also clarified that the company's current strategy is that it wants to increase sales, even if it hurts margins. In this situation, this is a better choice than selling a smaller volume and getting a higher margin. Tesla expects that its cars will eventually be able to generate significant profits through autonomy. In fact, by selling more cars, Tesla is laying the foundation for higher profit margins in the future, Musk explained.
“We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin. However, we expect our vehicles, over time, will be able to generate significant profit through autonomy. So we do believe we're like laying the groundwork here, and then it's better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy. This is an extremely important point.
“In conclusion, we're taking a view that we want to keep making and selling as many cars as we can. Despite this being an uncertain macro environment, this is a good time to increase our lead further, and we'll continue to invest in growth as fast as possible.”
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.