√Tesla says price cuts are working, more could be coming

Significant price cuts – up to 25 per cent in the US since the start of the year – have kept demand for new Tesla cars high despite rising interest rates, the company says.

US electric-car specialist Tesla says unprecedented price cuts since the start of this year have paid off – and it is on track for another year of record deliveries, despite rising interest rates and falling global demand for new vehicles among other car makers.

And if interest rates continue to rise – and economic conditions worsen – Tesla CEO Elon Musk says more price reductions could be around the corner.

Since January 1 2023, prices of Tesla vehicles have dropped between 6 and 24 per cent in the US – or between 5 and 12 per cent in Australia, depending on the model – as a response to what has been seen by analysts to slowing demand.

Tesla CEO Elon Musk says the price cuts have been successful in boosting demand to match production – at the expense of profit margins, which have approximately halved over the past 18 months.

“Demand is roughly tracking production, which is what we aim for,” Mr Musk told investors and media this morning.

“We adjust course according to what the mood of the public is. Buying a new car is a big decision for the vast majority of people so any time there’s economic uncertainty they pause on new-car buying to see what happens.”

Explaining the price cuts, Mr Musk said: “As interest rates rise the affordability of anything bought with that decreases, effectively increasing the price of the car.

“So when interest rates rise dramatically we have to decrease the price of the car because the interest payments increase the price of the car.”

Tesla executives told media and investors this morning the company is targeting 1.8 million deliveries globally this year – up from 1.31 million last year – after delivering 889,015 vehicles around the world in the first half of this year.

When asked if Tesla would need to cut prices further to hit its deliveries target – if interest rates rise further – Mr Musk said: “We don’t control macroeconomic conditions. If conditions are stable prices will be stable, if they are not stable we would have to lower prices.”

“We started the referral program which I think will be quite effective, but as I said earlier we don’t control macroeconomic conditions, so if interest rates continue to rise that reduces the affordability of cars,” said the executive.

Mr Musk said planned “summer shutdowns” due to “a lot” of factory upgrades are expected to see production between July and September 2023 (the third quarter of 2023) be “a little bit down”.

The company reported 466,140 vehicles delivered and 479,700 produced in the second quarter of 2023 (April to June).

Deliveries were up 83 per cent from the same period last year, and 10 per cent more than its previous quarterly record of 422,875 deliveries, set in the first quarter January to March 2023.

However operating profit dropped by 9.6 per cent in the second quarter of 2023 – due to price cuts – from a peak of 19.2 per cent in the first quarter of 2022.

“We expect that Q3 [July to September] production will be because we have summer shutdowns due to a lot of factory upgrades,” Mr Musk said.

Tesla chief financial officer Zach Kirkhorn said: “We realised cost improvements in nearly every category including material cost and commodities, manufacturing costs and logistics, while also continuing to rapidly increase the build rate in our Austin (US) and Berlin (Germany) factories.”

The post Tesla says price cuts are working, more could be coming appeared first on Drive.