Bloomberg comments Musk’s Price War Leaves Tesla With Self-Inflicted Wounds

A combination of price cuts and ho-hum sales figures so far this year have centered the ever lively debate about Elon Musk’s EV juggernaut on one question: Where will automotive gross margins pan out? To give you a sense of the answer, Tesla decided to change its format and drop that number from the report. But I calculated it here. [See lead chart]

Despite the price cuts, deliveries increased just 4.5% compared to the prior quarter and sales of the premium priced Models S and X collapsed.

Deliveries are up almost 37%, year over year, which is more encouraging. However, that wasn’t fast enough to match production, which is up 44%. Far from being supply constrained, Tesla has now notched up four quarters in a row producing more vehicles than it delivered, almost 78,000 cumulatively. The resulting swollen inventory has reversed Tesla’s favorable cash conversion cycle.

Self-Inflicted Wounds?

Bloomberg called the wounds self-inflicted, but that's not entirely true. To get Biden's Inflation Reduction Act energy credits, Musk had to cut the price on Teslas.

Yet, sales are skidding despite the price cuts.

The economy is weakening and there is more competition in the EV space coming up. Those are not self-inflicted wounds.

Whether self-inflicted or not, Tesla's market cap is down 50 percent from the peak and its forward PE is a lofty 51. And forward PEs don't always pan out.

Looking ahead, Tesla (TSLA) has more problems. For instance, what's it supposed to do with 78,000 excess cars as the economy careens into recession? 

Also, buyers of Tesla’s two most-popular models were eligible for a $7,500 federal tax credit. New, stricter requirements just went into place.

Unlike the 2020 pandemic, this recession is likely to be long and shallow, with the Fed unwilling to slash interest rates to goose the economy.

If the Fed does pivot, it will be because the economy is in a much deeper recession than I envision.

Neither way will be good for consumer sales or corporate profits. 

Biden Struggles to Convince People to Buy EVs

Meanwhile, please note that despite subsidies, Biden Struggles to Convince People to Buy EVs, Only 12 Percent Seriously Considering

Also, note Fed Minutes Now Predict a Recession This Year Along With Higher Unemployment

More By This Author:

Median Home Prices Sink 3% In March, The Biggest Yearly Drop Since 2012
Will The Debt Ceiling Cause A Fiscal Crisis Or Chaos? Two Competing Views
A Huge Millennial Home Ownership Gap In Pictures