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Tesla Earnings Exceed Target; Musk says high prices could hurt demand

Tesla Earnings Exceed Target;  Musk says high prices could hurt demand
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July 21 (Reuters) – Tesla (TSLA.O) on Wednesday reported a smaller-than-expected fall in quarterly profit, helped by a series of price increases for its cars, which Elon Musk later said were “embarrassingly high” and could hurt demand.

Tesla also sold much of its bitcoin holdings, leading to lower-than-expected depreciation caused by a decline in the cryptocurrency’s value, analysts said.

CEO Elon Musk freaked out on a conference call after the earnings, initially saying macroeconomic uncertainty could have some impact on demand for its electric vehicles, but when pressed for details by an analyst, he said the company doesn’t have a demand problem but a production problem.

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He said, “You can’t just raise prices to an arbitrarily high level because you break affordability and then demand falls off a cliff.”

“(The prices) are frankly at an embarrassing level. But we’ve also had a lot of supply chain and manufacturing shocks and we’ve got crazy inflation,” said Musk, who previously spoke of “a super bad feeling” about the economy. Continue reading

Tesla has raised prices several times in the past year. For example, the US price for the long-haul version of the Model Y is now $65,990, an increase of more than 30% since early 2021.

Musk said he expects inflation to ease by the end of the year and most commodity prices to stabilize, which he hopes will allow Tesla to cut prices slightly.

Shares of Tesla rose 1.7% in premarket trading on Thursday. Shares are down about 40% since their November peak.

Chief financial officer Zachary Kirkhorn said Tesla is still aiming for 50% growth in deliveries this year, adding that while the target has become more difficult, “it remains possible with strong execution.”

Tesla’s China plant ended the second quarter with record monthly production levels after being forced to close due to COVID-19-related lockdowns.

Musk said new factories in Berlin and Texas aimed to produce 5,000 cars a week by the end of the year, adding that Berlin was producing 1,000 cars a week in June. He had previously said the new factories are “gigantic money ovens”. Continue reading

A Tesla logo is seen in Los Angeles, California, the United States, 12 January 2018. REUTERS/Lucy Nicholson

Analysts at Morgan Stanley said in a report following Tesla’s earnings announcement that they see “short-term margin headwinds from (new) challenges ramping up new production, particularly in Berlin.”

Tesla executives acknowledged continued shortages in the supply of older-generation microchips, but said there were no major chip and battery supply issues aside from unforeseen COVID-related shutdowns.

The EV maker posted adjusted earnings per share of $2.27 for the second quarter ended June versus analyst consensus estimates of $1.81.

Auto gross margin fell to 27.9%, down year-over-year and the previous quarter.

Total revenue fell to $16.93 billion from $18.76 billion in the previous quarter, ending a streak of record earnings in recent quarters. Analysts were expecting $17.10 billion, according to Refinitiv. Continue reading

BITCOIN TO CASH

Tesla said it converted approximately 75% of its Bitcoin purchases into fiat currency, adding $936 million in cash to its balance sheet.

Musk said the sale was made to increase liquidity when Tesla was unsure how long China’s COVID lockdown would last. Tesla has not sold any of its holdings of the Dogecoin cryptocurrency.

“This should not be taken as a judgment on Bitcoin,” he said, adding that Tesla is open to increasing its cryptocurrency holdings in the future.

Musk had said in May last year that Tesla would not sell its Bitcoin.

“The Bitcoin losses point to an important part of the Tesla investment case – its eccentric owner. While Musk’s impressive innovation has served the company well, his personal flair is beginning to raise governance issues,” said Laura Hoy, analyst at Hargreaves Lansdown.

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Reporting by Hyunjoo Jin in San Francisco and Nivedita Balu in Bengaluru; Edited by Anil D’Silva, Peter Henderson, Matthew Lewis, Leslie Adler and Himani Sarkar

Our standards: The Thomson Reuters Trust Principles.

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