![]() ![]() Musk gave no indication of when this cash drought would end or how margins would improve. Months into his pricing campaign, Musk has nothing to show for it, and no plans to change. If prices are going down, and costs are going up, even the most fervent of Musk's Wall Street believers will tell you that margins don't have a prayer. In the third quarter, Tesla's capital expenditures actually ballooned to their highest level in a year - $2.4 billion, up from $1.8 billion a year ago. Unfortunately, cost cuts can't be spoken into existence, not even by Musk. (On the conference call on third-quarter earnings, he said it's like "'Game of Thrones,' but with pennies.") Naturally, this is a status Musk would like Tesla to keep, so he's promised to do everything he can to cut costs. That has bolstered the argument that Tesla wasn't a traditional car company such as Ford or GM and deserved its much, much higher stock price. Over the past two years, despite Tesla's addition of more moderately priced vehicles such as the Model 3 sedan and the Model Y compact SUV, its margins have grown to be some of the fattest in the car business. This horrified investors who had just gotten used to Tesla making money. Most importantly, the company reported that its gross margins - a measure of the company's profitability after costs - continued to shrink. The results were frightful across the board: Tesla missed Wall Street's expectations on revenue, vehicle deliveries, and free cash flow, which was down to $848 million from $3.4 billion a year before. That became apparent earlier this month when Tesla reported its third-quarter numbers. ![]() Musk's decision to offer deep discounts on his vehicles was an act of pure desperation. ![]() As legacy automakers walk the tightrope to our electric future, they can rely on sales of their traditional combustion-engine vehicles to provide them with a safety net. Winnable or not, Musk chose a terrible time to pick a fight. And in an industry where the underlying technology - and, thus, the costs of production - are changing rapidly, no one can be sure where the bottom is. That's how you win."Ĭonversely, some experts will tell you that price wars are unwinnable - that they're a race to the bottom that serves only to kill profitability for the entire industry. "If you do the price war, you have to make sure you have enough volume to increase and maintain profitability," John Zhang, a professor of marketing at the Wharton School, said. That means Tesla has set off a protracted battle for a piece of a pie that's growing crumb by crumb. To make matters worse, the public's appetite for EVs isn't growing as fast as automakers expected. ![]() Once totally dominant in the EV space, Tesla's share of the US market has fallen from 62% at the beginning of the year to only 50% today. Competitors aren't being driven out of business, either. Revenue is dropping, and the company's once fat profit margins are getting squeezed - down to 17.9% in the third quarter, compared with 25.1% a year ago. The number of cars Tesla delivered to customers in the third quarter actually declined. Lower prices are not translating into higher sales. It often indicates a user profile.īut that's not what's happening. Account icon An icon in the shape of a person's head and shoulders. ![]()
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