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(Reuters) – Tesla Inc shares fell 8% in U.S. premarket trading on Wednesday after the electric carmaker’s profit margin fell to a five-year low, adding to the urgency of making cheaper vehicles to boost sales rather than relying on price cuts.
Tesla’s price cuts and incentives to boost sales in a highly competitive market led to gross profit margins for the auto segment, excluding regulatory credits, of 14.6% for the second quarter, below analysts’ estimates of 16.29%, according to Visible Alpha.
“Until Tesla can start producing new lower-cost models, which the company expects in the first half of 2025, we believe pricing/incentives could remain a key demand lever and impact margins,” Goldman Sachs analysts said in a note.
The company’s stock price fell 7.9% to $226.40 in early pre-market trading in the United States, putting Tesla on track to lose about $63.7 billion in market value.
Tesla’s electric vehicle deliveries have fallen for two straight quarters as a lack of affordable new models has driven buyers to rival electric car makers.
“These competitors have significantly lowered the prices of their electric vehicles, making it more difficult for Tesla,” CEO Elon Musk said on a post-earnings call.
However, these “successive fluctuations in the gross profit margin of cars are not worth mentioning” given Tesla’s broader ambitions to commercialize self-driving software and other AI-based products, said Alexander Potter, a senior research analyst at Piper Sandler.
Over the years, Musk has promoted Tesla as a technology company, with a focus on self-driving technology. He said Tuesday that he would be shocked if Tesla cars weren’t self-driving, without human supervision, next year.
And if it weren’t for the technology, some analysts were skeptical about the timeline.
“We are concerned about the company’s ability to secure regulatory approvals and do not see a 2025 timeline as realistic for introducing the service,” said Tom Narayan of RBC.
However, despite the disappointing quarterly results, only one of 50 analysts covering the stock downgraded it, while there were three price target increases and two decreases, according to LSEG data.
The net result is that analysts, on average, still rate the stock a “hold” even though their average price target of $212.50 suggests they expect the price to fall 13% over the next few months, the data shows.
The stock is down 0.85% this year through Tuesday’s close, compared with a 16% gain in the past year.
