MarketWatch First Take: Tesla’s margins shrink despite ’embarrassing’ price increases, putting Elon Musk in a tough spot

by | Jul 20, 2022 | Stock Market

Even as Telsa Inc. “Technoking” Elon Musk said the electric-vehicle maker’s current prices are at “embarrassing levels,” the company on Wednesday still reported its lowest automotive gross margins in more than a year amid decades-high inflation, putting Musk in a difficult situation. Musk has made offering electric vehicles at lower prices part of his “master plan” for Tesla
but has struggled to do so, with a $35,000 version of the Model 3 quickly disappearing after the car made it through “production hell.” Tesla has increased prices regularly in recent years, as components have increased in price amid rapid inflation worldwide.

“We’ve raised our prices quite a few times,” Musk said on a conference call Wednesday afternoon. “They’re frankly at embarrassing levels. But we’ve also had a lot of supply-chain and production shocks and we’ve got crazy inflation. So I am hopeful — this is not a promise or anything, but I’m hopeful that at some point we can reduce the prices a little bit.” But reducing the cost of cars seems unlikely as Tesla faces shrinking margins even with the higher prices. Tesla executives told investors on the call that costs from Shanghai shutdowns were to blame for the drop in gross margins to 27.9%, down 46 basis points from year-ago margins o …

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