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Tesla shares dive as Musk warns of further price reductions

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2023-07-21

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The recent disclosure by Tesla's CEO, Elon Musk, regarding potential further price cuts triggered a near 10% nosedive in the company's shares to $US262.90.

The possible price reductions follow a series of cuts the electric vehicle manufacturer implemented this year, resulting in a decrease in US starting prices ranging from 14% to 28%, depending on the model. Despite this, Tesla delivered impressive Q2 results, dispelling fears on Wall Street that the reduced vehicle prices might undermine profits.

However, in a post-earnings call, Musk put investors on alert, suggesting that the company might need to further reduce prices and scale back production in the upcoming quarter for factory upgrades. "We just don't control the macro conditions," Musk said during the call. "If macro conditions are stable, I think prices will be stable. And if they're not stable, then we would have to lower prices."

In the second quarter, the automaker’s income rose 20% to $US2.7 billion, surpassing analysts' expectations, largely thanks to cost savings on materials. These savings effectively offset the impact of lower vehicle prices on the company’s profits.

The Q2 report also showed a surge in vehicle deliveries. The number of new Tesla vehicles delivered in the second quarter soared by 83% compared to the same period last year. However, the company's revenue growth did not match the pace of its delivery increase. Tesla reported revenue growth of 47%, amounting to $US24.9 billion.

The market's reaction to Musk's warning of more price cuts underscores the potential vulnerability of Tesla's profit margins, even as it continues to demonstrate robust growth in vehicle deliveries. As investors continue to monitor the company's performance, the implications of further price reductions on Tesla's overall profitability will be closely watched.

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