- Elon Musk was grilled about Tesla’s recent price cuts during the carmaker’s earnings call.
- Musk said Tesla could sell its product for “zero profit” due to future yields from its autonomous technology.
- The company has trimmed prices six times this year, and its profit margins have dropped as a result.
Investors and analysts questioned Elon Musk on Tesla’s recent price cuts during the companies earnings call on Wednesday.
The Tesla CEO answered over a half dozen questions around the company’s recent price cuts and their impact on the electric-car maker’s profit margin during the call.
Tesla owners and investors alike have not responded positively to the price cuts. During the first quarter, Tesla’s automotive revenue dropped more than $1.3 billion compared to the previous quarter, even as the carmaker carmaker made a record number of deliveries. Its gross profit margin dipped just below analyst expectations to about 19.3%, with analysts blaming price cuts.
Tesla signaled in its report that it could cut prices further. Musk told investors that he believes Tesla could technically even sell its cars for “zero profit” and that the company could instead make money in the future through its autonomous software.
“We’ve taken the view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk said during the call. “However, we expect our vehicles over time will be able to generate significant profit through autonomy. So we do believe we’re like laying the groundwork here, and then it’s better to ship a large number of cars at a lower margin and subsequently harvest that margin in the future as we perfect autonomy.”
“We’re not trying to, say, take pricing actions in order to deliberately undermine competitors or anything like that,” Musk said on Wednesday’s call. “We really don’t think about competitors that much.”
Tesla’s stock has dipped about 10% since the company released its earnings on Wednesday. Wedbush analyst Dan Ives said in a note to investors that the carmaker’s profit margins “are keeping Tesla investors up at night.”
“Elon Musk is using pricing as a cudgel against the competition,” former Ford CEO Mark Fields told CNBC. “He’s doing it because he has positive margins on EVs versus the competition which may not. When you look at using pricing to grow demand, you have to ask ‘how low can you go?'”