Elon Musk confirms Tesla may lower prices yet again as it cuts costs with billions in tax credits and lithium discounts

Dramatic cost savings thanks to the government's generous tax credits for new EVs and their batteries, as well as the fall in lithium prices, have allowed Tesla to surprise analysts with much better earnings than expected, despite the up to 30% EV price cut earlier this year. From the $0.35/kWh federal incentives for battery production Tesla expects to earn up "to $250 million per quarter," or a cool billion this year.

Another billion in cost savings may now come from the drastic, up to 80% fall in the price of lithium and other component materials compared to last year, said Tesla's CFO:

We’re also seeing benefits in aluminum and steel, which I think is great. Not as large as the lithium impacts, but they contribute nonetheless. So, if we add up the total impact of this in Q2 relative to prior quarter, it’s about the same size and magnitude as the IRA benefits that we also received.

The combination of government largesse, component costs reduction, and increased production efficiency, have allowed Tesla to take its price war aftermath in strides, and it is ready to do it again if markets deteriorate, advised Elon Musk:

So, if interest rates continue to rise, that reduces the affordability of cars. And for a lot of people, they’re really - they’re just really breaking even every month. In fact, if you look at the rise in credit card debt, they are, in fact, not breaking even every month. Credit card debt is looking scary. So, we just don’t control the market conditions. If market condition is stable, I think prices will be stable. If they’re not stable, then we would have [to] lower prices. Yes.

In Q2, Tesla's revenue grew 47% to US$24.9 billion on which the company netted US$2.4 billion in profit. The $0.91 earnings per share beat the analyst's $0.81 estimate by a large margin, yet the company advised that net income was slightly lower year-on-year on account of several factors.

Tesla said that this is due to the reduced average selling price of its vehicles and the increase in investment costs for its own 4680 battery production, as well for the Cybertruck, AI, and other projects like the Model 2 development. On the other hand, the increase in sales after the price cuts, as well as "lower cost per vehicle, which includes lower raw material costs and IRA credit" and the increased margin in its other businesses allowed it to preserve its profit margins relatively unscathed.

Moreover, other EV makers can only aspire to nearly 10% operating and 18% gross profit margins, despite that Tesla dipped below the 20% gross margin it planned to maintain. Elon Musk went on record again saying that "it does make 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," referring to the added FSD value.

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