Elon Musk promises “more affordable” EV as rival discounts take toll on Tesla profits

Elon Musk has promised that Tesla will deliver a “more affordable” electric vehicle in early 2025, as he admitted that discounts and increased competition were the main reasons for a significant slump in earnings in the second quarter.

The Tesla share price took a hit on Tuesday (US time) after the company released its second quarter earnings, which revealed a 45 per cent drop in profit, despite a big increase in the energy division, primarily because of the booming demand for Tesla’s Megapack grid scale battery product.

Total automotive revenues were down 7 per cent in the second quarter over the same period a year ago, while company-wide revenues hit $US25.5 billion, up 2 per cent, despite earnings hitting below $US1.5 billion, a drop of 45 per cent over the same quarter in 2023.

In line with vehicle deliveries, Tesla’s second quarter was an improvement on the year’s first quarter, with company-wide revenues up nearly 20 per cent, automotive revenues up 15 per cent, and earnings up 36 per cent.

Shares of Tesla slipped around 2 per cent, continuing to increase pressure on the company to demonstrate it can grow despite sporadic demand for electric vehicles.

“Plans for new vehicles, including more affordable models, remain on track for start of production in the first half of 2025,” the company told investors, explaining that these new vehicles “will utilize aspects of the next generation platform as well as aspects of our current platforms and will be able to be produced on the same manufacturing lines as our current vehicle line-up.”

Musk didn’t say much more about it in the earnings call. “We don’t want to get too much into the product roadmap here, because that is reserved for product announcement events, but we are, in fact, going to deliver a more affordable model in the first half of next year,” he said.

Tesla is currently focused on its best-selling cars, the Model 3 and Model Y, which it has been forced to discount to keep pace with competition, particularly from Chinese EV makers and its biggest rival BYD. It is also producing the Cybertruck, the Tesla Semi, and Musk says the long awaited new Roadster should be out by the end of next year.

Tesla acknowledging that its 2024 “vehicle volume growth rate may be notably lower than the growth rate achieved in 2023,” but it sought to reassure investors that this was partly due to a focus “on the launch of the next generation vehicle and other products.”

However, Musk was keen to focus on autonomy, which means the roll-out of Full Self Driving, the arrival of “Rob-taxis”, and the development of its Optimus humanoid robot that Musk says will be performing “useful tasks” on Tesla production lines by the end of next year, and may even be on offer to other companies in 2026.

The much awaited AI day which had been scheduled for August 8 is not set down for October 10. “The big, really, by far, the biggest differentiator for Tesla is autonomy,” Musk said. The reason for that is simple, it leads to sky high market valuations, with Musk noting that Ark Energy gave it a potential $5 trillion valuation based on AI success.

“In addition to that, we have scaled economies, and we’re the most efficient electric vehicle producer in the world,” Musk noted.

Musk said that the AI day was delayed because “I wanted to make some important changes that I think would improve the vehicle.” He hinted that  “we’re also going to show off a couple of other things.”

Musk was pleased with the energy business, which is the strongest part of the company at the moment, and was recently valued by Morgan Stanley at more than $A250 billion – more than the value of any Australian listed company.

In the second quarter, it delivered revenues of $US2.5 billion, and helped the company beat analyst estimates, at least on the revenue line. “Both Megapack and Powerwall achieved record deployment in Q2, resulting in 9.4 GWh of total storage deployments,” it said.

“Overall, the Energy business achieved record revenues and gross profit in Q2. The Lathrop Megafactory continues to ramp successfully, achieving a production record in Q2, and the Shanghai Megafactory remains on track for start of production in Q1 2025.”

As for the future, Tesla describes itself as “between two major growth waves”, the first being the release of the Model 3 and Model Y, and the second being the roll out of autonomy and the next generation EVs.

“In 2024, the growth rates of energy storage deployments and revenue in our Energy Generation and Storage business should outpace the Automotive business.”