Tesla TSLA -4.96%
It’s doing very well – so well that you might be wondering why it’s been raising prices so aggressively.
The electric vehicle pioneer on Wednesday reported another record quarter of profits, well above analysts’ forecasts, despite delivering a similar number of cars to customers. The explanation is a combination of price increases and surprisingly low BOM inflation given rising commodity prices. Teslas sold at an average price of about $52,200 — up 2.9% from the fourth quarter — while their average cost rose 1.7% to $36,500.
After factoring in additional revenue from regulatory borrowings and corporate costs such as research and development, operating margin was 19.2%, up from nearly 15% in the second half of last year. Most automakers give themselves a round of applause when they get into the double digits. Tesla shares rose 5% in aftermarket trading.
Such results are a testament to the strength of Tesla’s brand and manufacturing capabilities now that they’re running at scale, but they also raise questions about the company’s strategy. What is done with the money? And can a company built on the promise of affordable electric vehicles continue to raise prices and achieve margins beyond the wildest dreams of its competitors?
Some answers may lie in Tesla CEO Elon Musk’s much-anticipated “Master Plan Part 3.” He tweeted last month that it was in the works, in response to a Bloomberg article noting that his original master plan for making affordable family-focused electric vehicles, detailed in a 2006 blog post, is still ongoing. It clearly struck a chord.
It’s becoming clear that Mr. Musk’s new affordability pitch will revolve around robo-taxis for fleet use, not EVs for retail sale. He said earlier this month that Tesla was working on a robotaxi project, adding when called to discuss Wednesday’s results that it would be hosting a robotaxi event next year with a goal of ramping up full-scale production in 2024 start. This is after he said three months ago that Tesla is not currently working on a much-discussed $25,000 model.
The logic of robo-taxis is that they can be expensive to produce but cheap to drive as they are heavily used and make the most of an electric vehicle’s low cost of ownership. Batteries could also potentially be smaller than in cars optimized for personal use because they wouldn’t leave a fixed geographic area. Robotaxi rides would cost less than a subsidized subway or bus ticket, Mr Musk claimed on Wednesday.
Building robotaxi fleets also requires a lot of capital, as discovered by Alphabet’s Waymo and General Motors’ Cruise. This could be a future use for Tesla’s cash flows.
Mr Musk addressed the uncomfortable connection of significant price hikes and record margins, saying that given Tesla’s long waiting lists, the prices Tesla is charging now must anticipate commodity inflation over the coming six to 12 months. He also pointed out that the company is not threatened by a lack of demand.
Fair enough, but now Tesla’s promise of mass-market electric mobility seems to hinge on a technology that has proven extremely difficult to perfect. The company’s project timelines have a long history of lengthening, no more so than its efforts to make cars driverless. The year 2024 could again prove to be an optimistic delivery date.
Tesla’s Tech Star rating has long depended on cracking that nut it approaches differently than almost everyone else, spurning standard lidar perception technology in favor of cameras alone. Now, the company’s mission statement, “Accelerating the Global Transition to Sustainable Energy,” points in the same direction. Better not to lead to a dead end.
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https://www.wsj.com/articles/buying-a-tesla-will-remain-a-luxury-11650503225?mod=rss_markets_main Buying a Tesla will remain a luxury