- Operating margins fall below S&P 500 average
- Price war could wage for months yet
- Tesla stock stumbles after 170% 2023 surge
Tesla (TSLA:NASDAQ) seems to be creating a siege mentality among its thousands of investor fans. Elon Musk is waging an electric vehicles price war that could last many more months, and it is becoming increasingly difficult to square Tesla’s financial performance with its share price.
Second quarter 2023 margins fell again with near-term profits sacrificed for electric vehicles market share. Gross margins, where analyst once had a 20% line in the sand drawn, were 18.2% versus 19.3% in Q1 and 22.4% of Q2 2022, as you might have figured out when seeing revenues up 47% but gross profits up only 7%.
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Tesla’s operating margin was 9.6%, versus 14.6% a year ago.
AVERAGE S&P 500 MARGINS
These are still better than auto industry averages (around 8.5% approx.) but no longer superior (worse even) to S&P 500 company 10% averages, according to CSI Market data.
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So, while vehicle production jumped 86% and vehicle deliveries jumped 83% in Q2 2023 compared to Q2 2022, and leasing jumped 137% (still a very small part of Tesla’s vehicle business), it is obvious to wonder for how long investors will back Musk’s strategy, especially with hints of more price drops to come.
Tesla stock fell 3% in after-hours trading, yet the shares have soared nearly 170% this year so a little profit taking is to be expected.
TESLA LIKELY CUT PRICES AGAIN
‘For now, the company’s industry-leading margins are holding up better than feared, however guidance for further reductions and the prospect of factory downtime affecting production has led a share price, which has been motoring all year, to splutter a little,’ said AJ Bell investment director Russ Mould.
Comfort will be taken from reported $24.9 billion revenue and $1 billion in free cash flow, up 62% from the same period.
‘Tesla is still in an enviable position in the electric vehicle market which is why so many investors are along for the journey even if there may be some bumps in the road in the short term,’ said Mould.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (Martin Gamble) own shares in AJ Bell.
