- Tesla reported its lowest profit margin in over five years and missed earnings targets in Q2 due to price cuts and increased AI spending.
- Musk’s focus on developing self-driving taxis and lower-cost models raises concerns about the gap between his ambitious technological promises and their execution.
OUR TAKE
Elon Musk’s obsession with AI and self-driving technology is costing Tesla dearly. Slashing prices to stimulate demand could demonstrate Tesla’s vulnerability in an increasingly competitive market. Meanwhile, restructuring costs and lavish spending on AI projects have eaten into profits, with little to show for it in terms of immediate returns.
–Ashley Wang, BTW reporter
What happened
Tesla reported on Tuesday that its profit margin hit the lowest line in over five years and missed Wall Street earnings targets in Q2, as price cuts to revive demand and increased AI spending weighed on profits. The automotive gross margin, excluding regulatory credits, was 14.6%, below the expected 16.29%. Net income fell to $1.48 billion from $2.70 billion a year ago.
AI projects and restructuring costs, including layoffs of over 10% of employees, further impacted profits. CEO Elon Musk highlighted that competition from other EV manufacturers offering substantial discounts had complicated Tesla’s market position.
The company’s electric vehicle (EV) deliveries dropped for two consecutive quarters amid rising competition and slow demand for affordable new models. Sales of China-made EVs, crucial for European markets, also slumped. Despite these challenges, Tesla’s revenue was $25.50 billion, slightly above analyst targets.
Also read: Why I love Tesla so much more than BYD – a (strong) personal opinion
Also read: Tesla delays robotaxi launch amid design changes
Why it’s important
Musk’s focus on developing self-driving taxis and less ambitious lower-cost models has garnered investor interest but has not yet translated into immediate financial gains. Analysts express concern over the gap between Musk’s ambitious technological promises and their execution.
David Wagner, head of equity and portfolio manager at Tesla investor Aptus Capital Advisors, said, “Elon is great at dangling the carrot in front of investors, but new ideas tend to be long on vision, but short on execution.”
Tesla’s worst profit margin in five years demonstrates that Elon Musk’s grand vision is struggling to translate into financial success. While investors are dazzled by the futuristic promises of robotaxis and humanoid robots, the harsh truth is that these are distant dreams, not present realities.
