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Musk Claims That Tesla Will Prioritize Sales Growth Over Profit

Musk Claims That Tesla Will Prioritize Sales Growth Over Profit
Elon Musk, the CEO of Tesla Inc., said on Wednesday that his company would emphasize sales growth over profit in a slowing economy, continuing the pricing war he started at the end of last year.
The company, which aggressively cut prices in places like the US and China to boost demand and fend off mounting competition, reported its lowest quarterly gross margin in two years, missed market projections, and withheld from investors another crucial margin statistic.
In after-hours trading, the automaker's shares in Austin, Texas, fell 6%.
"It's better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy," Musk told analysts on a conference call. He said although the economy remained uncertain, the EV maker's orders exceeded production.
While standing by the company's official objective of 1.8 million deliveries on Wednesday, Musk, who had previously stated that he would have liked to see 2 million vehicles delivered this year, declined to confirm that.
Musk blamed the sluggish economy for Tesla's failure to disclose its automotive gross margin, a number that investors constantly monitor.
Musk had previously stated that the business might forego its market-leading margins in order to maintain volume growth throughout a downturn and keep up with escalating rivalry in China, where it is up against fierce rival BYD Co Ltd. According to the China Passenger Car Association, the growth in car sales in China remained unchanged in March.
"Tesla's worrying China sales figures indicate demand for its vehicles is slowing more than expected in the face of rising competition from local EV companies," said Jesse Cohen, senior analyst at
In a statement, Tesla expressed the opinion that it will continue to have the largest operating margin among major automakers.
According to 14 analysts surveyed by Refinitiv, the company reported a total gross margin of 19.3%, falling short of market estimates of 22.4%.
Zachary Kirkhorn, Tesla's finance head, pledged in January that the company will maintain a 20% automotive gross margin and an average selling price (ASP) of $47,000 for all models.
Tesla stated on Wednesday that their ASP decreased from a year ago in the first quarter without going into further detail.
Deliveries of more expensive Model S and Model X vehicles did, however, decline from the prior quarter, according to the firm.
Analysts claim that the EV manufacturer may need to lower costs even further as a result of a pricing war, particularly in China, even as its new plants in Texas and Berlin produce cars at a rapid clip.
Tesla recorded record inventory in the first quarter of $14.38 billion, up from $6.69 billion a year earlier.
During the quarter, it used up $154 million in cash and would have done so more if it hadn't made a $1.6 billion profit from "proceeds from maturities of investments."
Musk promised to build a new battery cell in 2020 that would cut the price of the most expensive component of an electric vehicle in half, but he acknowledged during Tesla's investor day last month that the business was still having trouble ramping up production for those cells.
Fans have long yearned for Tesla to update its stale model lineup, and Musk is seeking to reduce battery prices in order to make good on his promise to build a car for $25,000 or less.
"Our experts say Tesla is over-reliant on its Model 3 and Model Y for growth ... investors are keen to see new product launches soon," said Orwa Mohamad, analyst at Third Bridge. "In particular, they need a full-size SUV to replace the Model X and a smaller, cheaper Model 3 to drive volume."
Musk stated in January that Tesla anticipated beginning Cybertruck production this summer, but that volume production would not start until the following year.
Musk predicted a Cybertruck delivery event for the third quarter during the call on Wednesday.
Tesla reaffirmed that it anticipated 1.8 million vehicle deliveries this year.
Due to increasing expenses for raw materials, transportation, and warranties as well as the ramp-up of manufacturing of its 4680 battery cells, Tesla's net profit dropped by almost a quarter to $2.51 billion from a year earlier.
Revenue and income after one-time factors were subtracted were in line with Refinitiv's projections.

Christopher J. Mitchell

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