As investors worry about lower Tesla margins, Musk says Full Self-Driving is key to future profits

Telsa Inc. reported its lowest gross margins in over three years Wednesday, as the company has lowered prices on its electric vehicles and spent on ramping up another new factory, but Chief Executive Elon Musk told investors to focus on the bigger picture.

Tesla reported second-quarter earnings that beat Wall Street’s estimates on an adjusted basis, and a revenue jump of 47% to $24.9 billion. But its GAAP gross margins fell to 18.2%, its lowest operating margins since the fourth quarter of 2020, when they hit 19.2%. In the first quarter they were 19.3%.

“Look, the short-term variance in gross margin and profitability really are minor relative to the long-term picture,” Musk said in response to a question about margins on the company’s call with investors and analysts. “Autonomy will make all of these numbers look silly.”

And of course, that bigger picture, in Musk’s crystal ball, is Tesla’s

Full-Self Driving technology, which he envisions will turn its cars into robotaxis in the not-too-distant future. In Musk’s view, Tesla vehicles will become appreciating assets that their owners will be able to rent out, like Airbnbs.

(Just for a reality check: Remember Musk’s 2019 prediction of having 1 million robotaxis on the road in 2020? Yes, so do we.)

Even Musk admitted that he is now known as the “boy who cried FSD [Full Self-Driving], but, man, I think we’ll be better than human by the end of this year.” He also admitted that he had been wrong in the past, and he “may be wrong this time.”

Regulators, meanwhile, have been investigating whether Tesla’s Full Self-Driving and Autopilot features falsely overstate their capabilities.

Also see: Elon Musk says his new company xAI will ‘enhance’ Tesla value

Fully self-driving cars are not without problems of their own. In San Francisco, where several companies are testing their autonomous vehicles, and Alphabet’s


Waymo and General Motors Co.’s

Cruise are seeking to deploy fare-generating robotaxi services, many citizens and city officials are in an uproar over the problems they cause, ranging from randomly stopping in traffic to blocking emergency vehicles to crashing into public transit.

Back to the topic of lower margins, Musk said that, for now, it makes sense “to sacrifice margins in favor of making more vehicles, because we think in the not-too-distant future they will have a dramatic valuation increase.

“I think the Tesla fleet value increase — the point of which we can upload Full Self-Driving and it’s approved by regulators — will be the single biggest step change in asset value, maybe in history,” Musk said.

Having a car that does not depreciate the minute it is driven off the lot would indeed be an economic improvement for consumers, and Teslas do depreciate at a slower rate than most gas-consuming vehicles. But this idea still seems very far off — if ever.

Musk added on the company’s call that Tesla is willing to license its Full Self-Driving software to other car makers, the second time he has mentioned it, but this time he added that the company is in “early discussions with a major OEM [original equipment manufacturer] about using Tesla FSD.”

Tesla executives also cautioned about the ongoing macroeconomic uncertainty. Tesla shares fell nearly 5% in extended trading Wednesday, as there was no clear guidance on when margins may improve. Investors are likely focusing more on the numbers that were actually reported, instead of the optimistic future of the world’s most famous car salesman.

From 2019: Elon Musk is just another car salesman

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