Tesla says price drops are long-term thinking, but it’s really about demand
Tesla has just released its Q1 2023 earnings report amidst several price drops since the beginning of the year. This left investors questioning how these drops would affect margins, and Tesla has an explanation, but it’s perhaps only a partial one.
In a nod to the question on everyone’s lips, Tesla’s earnings report starts off immediately with a couple of paragraphs intended to address the effect of these price drops on its industry-high margins.
In the current macroeconomic environment, we see this year as a unique opportunity for Tesla. As many carmakers are working through challenges with the unit economics of their EV programs, we aim to leverage our position as a cost leader. We are focused on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments.
Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate. We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale.
Tesla is pointing out that since its EV volume is so drastically higher than every other automaker’s, it can build cars at a lower cost than the competition.
And indeed, after yesterday’s price drops and other even larger price drops earlier this year, Tesla has gone from being near the top of the EV price range to near the bottom. Last year, Tesla repeatedly hiked prices while the industry faced supply challenges and EV demand well exceeded supply.
After tax credits, the base Model Y is now under $40k, while many electric SUVs have higher starting prices. And the base Model 3 is now available for $40k before credits are taken into account, though it now only qualifies for $3,750 due to the IRS’ new battery guidelines.
Tesla points out that these cuts reduced its margins but says that this margin reduction happened at a “manageable rate.” In Q1 last year, Tesla’s operating margin was 19.2%, and this year it’s 11.4%, a drop of 779 basis points.
This is a big chunk, cutting operating margins almost in half – and note that there have been further price cuts, both in the US and elsewhere, since the end of the quarter. So we could expect average selling prices to go down further in next quarter’s earnings and perhaps another cut to margins.
That said, Tesla is still planning to grow production at a CAGR of 50%, guiding for 1.8 million deliveries next year (about 31% growth from last year’s 1.37 million production). Tesla says it would rather focus on high volume and lower margins.
And it should be noted that higher volume also displaces more gas vehicles, which is better for the environment and public health.
There are other reasons for these price drops. For one, costs have come down, particularly with a massive global drop in the costs of resources like lithium after last year’s massive global spike. Also, as Tesla CEO Elon Musk has pointed out, rising interest rates have made it more expensive to get a loan on a car, which means Tesla has had to lower prices to make purchases seem more attractive (this is a case study in how rising interest rates can lower inflation).
But Tesla claims these margin cuts are manageable, and not only that, the company is taking a long-term view:
Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity and service. We expect that our product pricing will continue to evolve, upwards or downwards, depending on a number of factors.
Here, Tesla says that despite the vast majority of its revenue coming from sales of cars – in Q1, $19.9b came from cars and only $3.3b came from energy, services, and other – it feels confident that any losses in automotive sales revenue will be made up for in the long term by these other revenue categories.
Tesla currently sells access to its FSD Beta software for an eye-watering $15,000. This is an enormous chunk of change, particularly for a car that sells for $40k new. Tesla CEO Elon Musk has claimed that FSD has enormous value, though most who have used it recognize that it’s definitely not ready for primetime yet. Perhaps this is why timelines for its rollout keep getting pushed back. (Is it next year yet?)
Tesla also mentions Supercharging as a potential revenue center. Right now, Tesla doesn’t make a lot of money on Supercharging, but that may change very soon, as the company has started opening up Superchargers to other brands. Tesla used this opportunity to establish the “North American Charging Standard” using its connector, claiming that, since its connector is on the majority of cars and DC chargers in North America, other automakers should follow Tesla’s lead and use its plug.
This also opens the company up to the availability of billions of federal dollars earmarked for charger installation but which can only be used on chargers that are open to multiple brands of car. Until recently, only Teslas could use Superchargers, but now that they’re open to other cars, Tesla can presumably angle for some of those billions.
Finally, Tesla says that service could be a profit center, a big change from Musk’s original philosophy on the topic. Here’s a video from Tesla’s 2013 shareholder meeting, timestamped to 1:36 when his answer on service begins:
Clearly, things have changed since then, and Tesla is much larger and has different goals and considerations now than before. But in the context of discussing auto dealerships, with which Tesla is still in a battle, one would think that this overarching “philosophy” would not have changed with transient business conditions.
Nevertheless, this is one way in which Tesla could conceivably offer reduced upfront prices, with the hopes that the continual business of servicing vehicles in the field would help to shore up margins. Most other automakers don’t have this option since they don’t own their dealerships, but Tesla does, which gives it the flexibility to capture this portion of revenue. It sounds like the company now explicitly intends to seek this revenue after originally promising not to.
Electrek’s Take
But there’s another reason that Tesla doesn’t mention in its report: demand.
I know; we’ve heard it before. For the last decade, other automakers, media, incumbent industry, oil companies, captured regulators, and so on have all said that there just isn’t enough EV demand. We’ve called them wrong every time, and they’ve been wrong every time.
But specifically, here, we’re talking about demand solely for Tesla, after the huge price hikes that the company engaged in over the course of 2021 and 2022 and amid questionable public behavior by the CEO.
At the time when Tesla was raising prices, EV demand was very high, and EV supply was very low. This gave Tesla, the company with the most EV supply, significant pricing power.
Now, we still have high global EV demand, with many other brands selling out vehicles while gas cars go unsold. But in the US, we have an ever-changing tax credit environment, with some new rules going into place yesterday. This means there’s a lot of shifting happening in the industry, and it’s hard to predict which models will have the most demand as only some qualify for the tax credit (however, you can bypass most restrictions by leasing).
And while Tesla is mostly on the good side of this – its cars are now much lower in price, and most of them qualify for credits – it also has a ton of supply, is continuing to ramp quickly, and may be alienating potential customers.
Anecdotally (and in data), CEO Musk’s recent behavior related to the Twitter “dumpster fire” he keeps burning his money in has affected the company’s reputation. Musk says that TSLA shareholders will benefit in the long term from all the irrelevant nonsense he’s very publicly getting himself into, but we are not convinced.
So between high prices, erratic behavior from the CEO, and availability of other EV models, customers have perhaps looked elsewhere over the last year. As a result, Tesla’s inventory started to grow in a way that the company hasn’t ever really dealt with before, and it had to start pulling demand levers. It first did this with incentives, but this year has focused instead on large price drops.
Those price drops will definitely be able to bring some customers back, but it remains to be seen if some customers were permanently turned off by the high-profile behavior of the CEO.
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From the ashes of Elon Musk’s decision to fire the whole Supercharger team last year, a new company has risen: Hubber, which will take its founders’ expertise at setting up Tesla Superchargers and apply that to addressing the lack of high-speed urban charging for taxis and other commercial vehicles.
Last year, Tesla CEO Elon Musk suddenly fired the entire charging department, in what is one of the more chaotic decisions he’s made yet.
In the immediate aftermath of this decision, a lot of questions were asked around the industry – and a lot of companies started snatching up talent from the best EV charging team in the world.
Or, alternately, some of that talent went to form their own companies. That’s the case for Harry Fox, Connor Selwood and Hugh Leckie, who met at Tesla and together oversaw the rollout of 100 Supercharger sites with 1,200 total chargers across the UK & Ireland. And after the shakeup of the Supercharger team, they set off to charge a new path of their own.
The three formed Hubber, which pitches itself as a new type of EV charging company, focused on solving “the urban charging gap.”
Hubber describes itself as “the UK’s leading specialist in urban high-powered EV charging, addressing one of the most urgent constraints in the energy transition: the shortage of fast, reliable charging in major cities.” It “acquires and develops prime urban sites into large-scale charging hubs, combining deep grid-connection know-how with a proven ability to deliver complex infrastructure at speed”.
A large amount of the traffic in UK cities is taken up by taxis and last-mile, and these vehicles tend to see higher utilization than commuter cars, so they need to charge more often. Hubber says that taxis charge five times as often as a private vehicle, which means they’ll need more access to fast EV charging.
This is further exacerbated in urban environments, where EVs might not park in a place they can charge. Lots of urban homes don’t have garages, and while there are street EV chargers available in London, they’re not everywhere yet. So convenient fast charging is essential.
And the needs for commercial drivers are different than those of other commuters. While nicely-appointed charging plazas (like Rove’s “full service” EV charger in Santa Ana, CA) are great for the average consumer, commercial EV drivers put more of a premium on speed and affordability, and don’t mind if a site is a little further off of a main thoroughfare, or not as close to food or shopping as other drivers might want.
So Hubber is looking at sites that other developers might pass over – like old warehouses or gas stations – and figuring out how to turn them into an ideal site for high-throughput charging.
With its cofounders’ experience at Tesla, Hubber will buy sites, transform them into a charger-ready location, and essentially provide the dream location that they would have liked to see during the site selection processes they went through in their previous jobs.
The charging hubs could still have some amenities, like restrooms and vending machines, of the type that would be useful for taxi or ride-hailing drivers to grab during a quick stop. But the main focus would be on getting people in and out and back on the road.
Here’s a rendering of what a potential site might look like. In this sample location, there would be room for light-duty vehicles up front, with an area for larger last-mile delivery vehicles with larger charging bays. A small covered area could provide restrooms and vending, and another portion of the site could be dedicated to transformers, batteries and the like.
Hubber is also thinking ahead to a possible autonomous future, where driverless ride-hailing vehicles like those from Waymo could have a place to charge. Although given that there aren’t currently great solutions for autonomous charging, an attendant might have to be involved for the foreseeable future.
The company would also like to expand beyond the UK and Ireland, but they’re sticking to home base for the time being. After all, things are just getting off the ground – but the £60 million (~$81m) investment that Hubber just secured is certainly a big boost towards getting the project moving.
Speaking of projects, Hubber’s first facility is opening this coming week, on August 20th. The site is at Forest Hill in South London, near Forest Hill Station. It will have 12 EV charging bays, with 3 150kW and 3 300kW dual-head chargers. The site will be operated by RAW charging, which will offer free fast charging for its first week of operation.
Electrek’s Take
As we said at the time, firing the whole Supercharger team was a dumb decision. It was immediately obvious to everyone in the industry that it was a dumb decision, and Tesla did eventually relent and rehire some of the fired workers, but the damage was done – and not just for the charging team, but morale was made low throughout the organization.
The silver lining, at least for the rest of the industry, is that it allowed this talent to be distributed around to other companies. This isn’t beneficial for Tesla and did cause chaos which has likely affected the rollout of NACS, slowed EV charging site development in the US, and so on, but it has been beneficial for other companies who managed to snatch up talent.
Or, for companies like Hubber, which were formed by that talent.
It’s an interesting idea, and I like the angle of focusing on taxis in order to increase utilization of the site. EV charging is potentially an interesting business long term, but currently a lot of chargers see low usage because it’s so easy for most of the people who own EVs to charge at home.
But we’re going to have to move beyond the market of people who can easily charge in a garage attached to a single family home, especially in cities. Getting an easy way for the cars that get used the most in a city to charge is a really important move, and we’re looking forward to seeing how Hubber can help with this. And having a leadership team consisting of people who formerly worked at the best charging team in the industry isn’t a bad start.
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Indian ag and automaker Mahindra has launched a limited-run Batman Edition of its BE 6 Electric Origin SUV, calling it, “a production car that brings to life a rare fusion of cinematic heritage and modern luxury, inspired by Christopher Nolan’s critically acclaimed The Dark Knight Trilogy from Warner Bros. Pictures.”
And, you guys – the new Mahindra BE 6 is. So. Serious.
Someone at Mahindra is very taken with American culture it seems. After launching the Willys MB Jeep-inspired Mahindra Roxor a few years ago, the company followed it up by building a credible line of EVs co-developed with VW. Now, they’re building a limited edition of one of those EVs inspired by another American cultural icon.
“Batman is more than a pop-culture icon — he represents innovation, resilience, and an unyielding drive to push boundaries,” says Vikram Sharma, Senior Vice President, Warner Bros. Discovery Global Consumer Products, APAC. “This collaboration brings that spirit to the road in a bold, electric way. With this limited-edition range, fans in India can now experience the thrill of Batman every time they drive. It’s a collector’s statement on wheels.”
To separate the Batman Edition from the other Mahindra SUVs, its makers have festooned their EV with Dark Knight logos and branding, inside and out.
Batman Edition features
Exterior
- Custom Satin Black Colour premieres on the Batman Edition
- Custom Batman Decal on front doors
- R20 alloy wheels for an aggressive, athletic stance
- Alchemy Gold-painted suspension and brake callipers a bold, premium contrast to the Satin black body
- “BE 6 × The Dark Knight”, limited edition, rear badging
- The Bat emblem, as seen in The Dark Knight Trilogy, uniquely placed on:
- Hub caps
- Front quarter panels
- Rear bumper
- Windows & Rear Windshield
- Infinity Roof featuring The Dark Knight Trilogy Bat emblem
- Night Trail – Carpet lamps with The Dark Knight Trilogy Bat emblem logo projection
- ‘Batman Edition’ signature sticker on rear door cladding
Interior
- Brushed Alchemy Gold Batman Edition plaque on the dashboard with numbering
- Charcoal leather instrument panel (IP) with brushed gold halo around driver cockpit
- Suede and leather upholstery with gold sepia accent stitching and integrated The Dark Knight Trilogy Bat emblem for a rich, tactile experience
- Gold-accented steering wheel, In-Touch Controller, Electronic Parking Brake, custom key fob with Alchemy gold detailing
- The Dark Knight Trilogy Bat emblem embossed on:
- The “Boost” button
- Seats
- Interior labels
- Pinstripe graphic and The Dark Knight Trilogy Bat Emblem across the passenger dashboard panel
- Race car inspired open straps with Batman Edition Branding Batman Edition welcome animation on the infotainment display
- Custom Batman inspired exterior engine sounds
Despite all the Batman branding, the end result is almost tasteful. I could do without the custom Batman decal on the front quarter panels, but the rest of the mods are far less offensive. I even like the little “Bat Signal” puddle lights on the wing mirrors.
Mahindra Batman BE 6
As a car, the special edition Batman Mahindra is based on the top-shelf version of the BE 6, fitted with a 79 kWh battery good for 550 km (about 340 miles) of range according to its WLTP rating. That battery sends power to a rear-mounted 282 hp (210 kW / 286 PS) electric motor generating and 380 Nm (about 280 lb-ft) of torque that sends power to the rear wheels.
The BE6 also features a modern Level 2 ADAS tech and screens everywhere, including in the steering wheel hub – which seems like it might get particularly nasty in an airbag deployment (but no one asked me).
Pricing starts at ₹27.79 lakh (a little under $27,500, as I type this), and production will be limited to just 300 units. Order books are set to open 23AUG.
SOURCE | IMAGES: Mahindra.
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Electric bike and scooter safety is now part of the curriculum in some schools – and surprisingly, it’s happening in Florida.
Yes, Florida. The state that’s better known for keeping education out of schools, banning everything from books to the word “gay.” But now, a Central Florida nonprofit is stepping in to make sure students are at least learning how to ride responsibly.
The group Best Foot Forward for Pedestrian Safety has partnered with local police departments and Orange County Public Schools to bring e-bike and e-scooter safety programs directly into middle schools and high schools. The initiative is focused on addressing the growing number of crashes and injuries involving students riding electric two-wheelers.
The safety course covers basics like wearing helmets, obeying traffic laws, and making yourself visible to drivers — skills that are important for the many young riders who are increasingly taking to electric bikes as a form of independent transportation around their cities and neighborhoods. One of the main topics of the program is said to be speed management. The program addresses the importance of keeping speeds reasonable and the impacts of faster riding.
Like much of the US, Florida has seen a surge in e-bike and e-scooter popularity among kids and teens, especially in suburban and coastal areas. While many embrace them as a fun and fast way to get around, the sudden rise has also come with a worrying spike in injuries and deaths, prompting calls for improvements in both infrastructure and education.
With e-bike usage exploding across the US, more schools and communities are exploring steps to increase rider education. It’s a sign that America’s transportation habits are changing – and our education systems are beginning to catch up.
Electrek’s Take
I think programs like this are great because they teach kids things that they’d otherwise have to learn through trial and error. We don’t just hand cars to sixteen-year-olds and say, “figure it out.” So it follows that some form of organized rider education would be important as more youths take to e-bikes than ever before.
In cycling-intensive cities in Europe, all schools teach kids to ride bikes, often giving the kids some form of cute little cycling diploma to demonstrate that they’ve passed the course and can safely ride a bike.
But at the same time, this makes me wonder if we’re still missing the point. Responding to an increase in e-bike rider deaths with lessons about bicycle speed management is a bit like responding to mass shootings by lecturing innocent passersby about why they shouldn’t run into bullets.
Educating riders is always great and I’ll always support it. But in parallel, perhaps we should also be addressing the root cause of all of these tragics deaths. At the end of the day, most electric bike-related deaths aren’t a result of an e-bike rider doing too much fast riding; they’re a result of a car driver doing too much running over a cyclist.
via: Fox13
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