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Due To Concerns About Its Growth And Product Strategy, Tesla Is Anticipated To Report A Smaller Profit Margin

Due To Concerns About Its Growth And Product Strategy, Tesla Is Anticipated To Report A Smaller Profit Margin
Tesla is expected to soon release its lowest gross profit margin in over six years following a wild week that includes significant layoffs, car price reductions, and investor demands for clarification on the company's product strategy.
During the conference call following the results, investors are expected to grill Tesla's CEO, Elon Musk, sharply about what will happen to the so-called Model 2, a cheap car he had stated in January would go on sale in 2025.
On April 5, Reuters obtained an exclusive report stating that Tesla had abandoned its ambitions for the vehicle and was now concentrating on developing a self-driving robotaxi using the same small-car platform.
Musk first said on social media that "Reuters is lying," but he hasn't pointed to any errors or explained what will happen to the model. The Model 2 had been the object of investors' hopes for higher sales.
Early Tesla supporter Graham Tanaka, a portfolio manager at Tanaka Growth Fund, said he had sold the entirety of his stake in the company recently due to the Model 2's uncertainties and the Cybertruck electric pickup's sluggish production.
"The Model 2 was supposed to be the moat around their business model, but it’s been delayed at a minimum," he said. "We think there’s going to be more risk in owning Tesla next year because we don’t know how fast the Cybertruck will be ramping up.”
On Monday, the billionaire CEO was supposed to meet with Indian Prime Minister Narendra Modi and make significant announcements about investments in a car factory that was supposed to build a low-cost, compact model. Musk abruptly cancelled, citing his "very heavy Tesla obligations."
Tesla's sales growth is currently declining, which is anticipated to have a significant impact on Tuesday's results. The carmaker announced earlier this month that deliveries had decreased by 8.5% while inventory had increased. Tesla significantly reduced its margins over the weekend by announcing the most recent in a string of worldwide price reductions for its Model 3, Model Y, and other vehicles.
After years of double-digit growth, several analysts predict that Tesla's annual deliveries will drop for the first time in 2024.
Tesla signalled in January that price reductions alone would not be enough to boost demand by announcing that delivery growth would be "notably lower" this year.
As of Monday afternoon, Tesla shares had lost around 43% of their value this year.
According to 20 analysts surveyed by Visible Alpha, Wall Street anticipates automotive gross margin excluding regulatory credits to be 15.2%, down from 19% a year earlier and the lowest since the fourth quarter of 2017.
The automaker may also be questioned about its difficulties in producing large quantities of the upgraded 4680 batteries, which Tesla hopes to use in other models in order to cut costs and is required for the Cybertruck.
Andrew Baglino, the head of Tesla's batteries, quit last week as the business began layoffs that are anticipated to affect more than 10% of its worldwide workforce.
With a market valuation of over $468 billion, Tesla is still the most valuable carmaker in the world, but it has fallen from its record highs set in November 2021 by nearly two thirds. Historically, expectations for mass-market EV sales and advancements in self-driving car technology have played a major role in its valuation.
Analysts have pointed out that since the Reuters story on the change in Model 2 approach, investors who had been betting on sharp sales growth may sell their shares. Analysts predicted that those investors would be replaced by others who are prepared to hold up for Teslas that can drive themselves.
Musk has long anticipated the coming of completely autonomous vehicles, but considering the difficult engineering and regulatory obstacles, it may still be years before this happens.
Regarding its Autopilot and Full Self-Driving systems, which do not achieve complete autonomy, Tesla is confronted with legal actions and inquiries.
With his recent comments on social media regarding Tesla's approach to self-driving cars, Musk has sparked additional inquiries. Going "balls to the wall" on autonomy was a "blindingly obvious" option, he subsequently added, after hinting at a "Robotaxi unveil" on "8/8," which is likely August 2024.
Tesla recently provided a free trial for Full Self-Driving and lowered the option's price from $12,000 to $8,000 over the weekend in an effort to pique customer interest.
Given how challenging it has been for the manufacturer to mass-produce its most recent model, the Cybertruck, Tesla may not receive much assistance in its efforts to increase sales and margins.
Although the firm does not release production numbers for the pickup model individually, it recalled around 3,900 of the cars manufactured between November of last year and April of this year.
On Tuesday, investors will probably want clarification on whether Musk will stick to his 2025 target of building 200,000 Cybertrucks. According to Musk, the model won't generate a profit until 2025.

Christopher J. Mitchell

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