Tesla’s new burden: shouldering the market – Reuters

Elon Musk, Chief Executive Officer of SpaceX and Tesla and owner of Twitter, gestures as he attends the Viva Technology conference dedicated to innovation and startups at the Porte de Versailles exhibition centre in Paris, France, June 16, 2023. REUTERS/Gonzalo Fuentes/File Photo Acquire Licensing Rights
NEW YORK, July 19 (Reuters Breakingviews) – Elon Musk doesn’t shy away from plans to change the world. The burden of running Tesla (TSLA.O) is that he has to. The automaker created the electric-car market with its breakthrough vehicles. Now, it must help rivals grow in order to expand the market. Second-quarter results released on Wednesday show the toll that’s taking.
For a while, Tesla generated profit so high it made combustion-engine businesses look like the fossils they run on. The $920 billion automaker’s operating margin peaked at 19% in the first quarter of 2022, compared to 11% for General Motors (GM.N). Back then, Tesla had three-quarters of the U.S. electric vehicle market, according to Cox Automotive.
Those were the easy days. Tesla succeeded in growing production, but was left making more cars than it could sell. Its U.S. growth flatlined in 2022, Cox reckons, as the overall quarterly growth rate of electric sales downshifted.
Despite support from the Biden administration, electric vehicles face stiff challenges. U.S. charging infrastructure is less developed than elsewhere, with fewer spots and poor reliability. And electric cars are expensive, reaching a peak of $66,390 on average last year, more than a third higher than the average car overall at the time.
Plus Tesla is so large now that it can’t just preach to easy converts. It needs the entire electric-vehicle market to grow beyond its current 7% share of the U.S. market, to bring in new buyers. That’s especially true given competitors’ push into battery-powered rides, shaving Musk’s slice of the electric pie to 59% this quarter.
That may be one reason Musk opened up Tesla’s supercharger network to rivals, who in turn are adopting his company’s more reliable plug design. Musk also said on Wednesday that the company is in talks with a "major" automaker about licensing its self-driving technology. And he has ruthlessly cut prices, with automotive revenue per car delivered, adjusted for regulatory credits, down to around $45,000 in the second quarter, a 20% year-over-year fall.
But there are consequences for Tesla’s own business. Its proprietary charging network and technology are key differentiators for customers. Slashing prices will make a more competitive, user-friendly industry. Cox found 51% of consumers are now at least interested in an electric car. But Tesla’s operating margin has fallen to under 10%.Gross profit per car delivered is also down, 44% year-over-year, despite costs also declining. Tesla is lending a hand to the market while creating an environment for more hard-fought spoils.
Follow @JMAGuilford on Twitter
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
CONTEXT NEWS
Electric-car maker Tesla reported second-quarter results on July 19. The company led by Elon Musk saw revenue grow 47% year-over-year. Amid global price reductions, Tesla increased car deliveries by 83% from the same quarter in 2022, though its gross profit margin fell to 18% from 25%.
Electric-vehicle sales in the United States reached a new record of nearly 300,000 in the second quarter, up around 48% year-over-year, according to Cox Automotive. Tesla’s share of electric vehicle sales fell below 60%.
On June 8, General Motors announced that it would adopt Tesla’s charging connector design and help its customers gain access to the company’s supercharger network. The move followed a similar announced from peer Ford Motor.
Editing by Lauren Silva Laughlin and Sharon Lam
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