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Tesla’s Impressive Q2 Earnings Report: Record Revenue And Profit Margins Under Pressure

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(CTN NEWS) – Tesla released its earnings after the closing bell, revealing an impressive record for quarterly revenue. However, their profit margins were affected by price reductions and incentives.

Initially, the stock price showed little movement following the report.

However, during the earnings call, CEO Elon Musk and other executives were unable to provide exact specifications and delivery timelines for the highly anticipated Cybertruck and a robotaxi-capable vehicle.

This uncertainty caused the stock price to start declining. Additionally, Musk and the executives announced that vehicle production would slow down in the third quarter due to temporary factory shutdowns for necessary improvements.

As a result, the stock price experienced a decline of approximately 5% in after-hours trading.

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Here’s how the company did versus expectations:

  • Revenue: $24.93 billion, versus $24.47 billion expected according to Refinitiv.
  • Earnings: 91 cents per share adjusted, versus 82 cents per share expected as per Refinitiv.

In the latest financial report, Tesla’s net income (GAAP) showed a significant increase of 20% compared to the previous year, reaching $2.70 billion.

However, operating income experienced a slight decline of 3% from the same quarter last year, settling at $2.40 billion.

For further context, in the first quarter of 2023, Tesla’s net income was $2.51 billion, with revenue amounting to $23.33 billion.

In the second quarter of the previous year, the company reported a net income of $2.27 billion and generated $16.93 billion in revenue.

During the earnings call, CEO Elon Musk shared that Tesla aims to achieve 1.8 million vehicle deliveries by the end of the year.

However, he mentioned that production in the third quarter might be slightly lower due to factory upgrades during the summer shutdowns.

Tesla Exceeds Expectations with Q2 Deliveries but Faces Margin Challenges

Earlier this month, Tesla surpassed expectations by reporting a total of 466,140 vehicle deliveries for the second quarter of the year, with a production count of 479,700 electric vehicles.

However, the company faced margin challenges, as operating margins dipped to 9.6%, the lowest in the last five quarters, while the total gross margin settled at 18.2%, marking a low for the same period.

Higher-than-expected deliveries were partly driven by incentives and discounts, but Tesla acknowledged that its lower margins in Q2 were influenced by several factors.

These included reduced average sales prices due to the mix and pricing of the cars being sold and the expenses incurred in ramping up production of their in-house designed battery cells, known as the 4680 cells, among other contributing factors.

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Tesla’s Core Automotive Business Revenue Surges 46% YoY, Energy Generation and Storage Revenue Up 74%, and Services Revenue Increases by 47%.

Tesla witnessed a remarkable 46% year-over-year increase in revenue from its core automotive business, reaching an impressive $21.27 billion. Sequentially, the revenue experienced a notable 6.5% rise.

Furthermore, the company’s revenue from energy generation and storage, which includes solar installations and backup batteries, saw substantial growth, soaring by 74% year-over-year to reach $1.51 billion.

As Tesla’s fleet of vehicles on the roads continued to expand, the “services and other” revenue category also performed well, surging by 47% and reaching $2.15 billion.

This segment includes income from fees for out-of-warranty vehicle repairs and various other service-related offerings.

Elon Musk’s Insights on Tesla’s Gross Margins, R&D Costs, and Cybertruck Progress

When asked about the potential stabilization or increase in Tesla’s automotive gross margins due to price reductions and factory improvements in the near future, Musk refrained from giving a direct answer.

He emphasized that short-term fluctuations in gross margin and profitability are relatively insignificant when compared to the broader, long-term outlook.

Musk expressed confidence that advancements in autonomy technology will ultimately render these figures unremarkable.

Tesla saw a rise in research and development costs, amounting to $943 million in the most recent quarter, compared to $771 million in the previous quarter.

The company, as stated in a shareholder deck, remains committed to staying at the forefront of AI development and has commenced production of its cutting-edge “Dojo” training computers.

In a remarkable achievement, Tesla’s crossover vehicle, the Model Y, secured the title of the best-selling vehicle worldwide during the first quarter of 2023.

In an investor deck, Tesla confirmed that progress on the Cybertruck’s “factory tooling” is on schedule.

However, currently, the company is only producing “release candidate” builds, potentially disappointing eager fans who have been eagerly anticipating the start of deliveries for the unique, sci-fi inspired pickup that Elon Musk first introduced in 2019.

Recently, Tesla shared a photo on Twitter showing factory workers gathered around a Cybertruck at their facility in Austin, Texas, proudly announcing it as the “First Cybertruck built at Giga Texas!”

Elon Musk Unveils Cybertruck’s Cutting-Edge Technology and Ambitious Production Plans in Tesla’s Earnings Call

During the earnings call, Musk highlighted that the Cybertruck would incorporate numerous “new technology” elements, involving approximately 10,000 distinct “unique parts and processes.”

While acknowledging the initial ramp-up could be challenging to predict, Tesla aims to produce the Cybertruck in high volume next year and plans to commence deliveries this year.

Musk also revealed Tesla’s commitment to invest over $1 billion in the development of Dojo, a supercomputer designed for AI machine learning and computer vision training.

Tesla uses video clips and data from both customer and company vehicles to enhance existing software and introduce new features in their driver assistance systems.

Addressing the progress on self-driving technology, Musk acknowledged previous promises and stated that Tesla aims to surpass human driving capabilities by the end of the year.

The company’s driver assistance systems, such as Autopilot or Full Self-Driving capability in the US, currently require a human driver to be prepared to take control at any time.

Looking to the future, Musk discussed the potential of combining Neuralink brain implants with robotic limbs manufactured by Tesla.

He expressed hope that such technology could offer incredible capabilities to amputees, likening it to a real-life “six-million-dollar man” but at a much more affordable cost, playfully dubbed the “Sixteen-thousand-dollar man.”

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