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Tesla tops profit target; Musk said higher prices could hurt demand

Tesla tops profit target;  Musk said higher prices could hurt demand
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July 21 (Reuters) – Tesla (TSLA.O) It reported a smaller-than-expected drop in quarterly profit on Wednesday, helped by a string of price hikes for its cars, which Elon Musk later said were “embarrassingly high” and could hurt demand.

Tesla also sold most of its bitcoin holdings, leading to unexpected impairment charges due to the cryptocurrency’s falling value, analysts said.

CEO Elon Musk flip-flopped on a post-Ornament conference call, initially saying macroeconomic uncertainty could have some impact on demand for its electric cars, but when pressed for details by an analyst, he said the company doesn’t have a demand problem. . But production is a problem.

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“You can’t just raise prices to some arbitrarily high level because you hit the affordability boundary and then demand falls off a cliff,” he said.

“(Prices) are frankly embarrassing. But we’ve had a lot of shocks to our supply chain and production and we’ve got crazy inflation,” said Musk, who previously had “a very bad feeling” about the economy. Read more

Tesla has raised prices several times in the past year. For example, the US price for its Model Y long-range version is now $65,990, up 30% from early 2021.

Musk said he expected inflation to begin easing by the end of the year and prices for most commodities to stabilize, which he hoped would allow Tesla to lower prices somewhat.

Tesla shares rose 1.7% in pre-market trading Thursday. Shares have fallen nearly 40% from their peak in November.

Chief Financial Officer Zachary Kirkhorn said Tesla is still pushing for a 50% increase in deliveries this year, adding that while the goal has become more difficult, “it remains doable with strong execution.”

Tesla’s China factory ended the second quarter with a record monthly production level, after being forced to close due to a COVID-19-related lockdown.

Musk said the new factories in Berlin and Texas aimed to produce 5,000 cars a week by the end of the year, with Berlin producing 1,000 cars a week in June. He previously said the new factories are “huge money reactors.” Read more

A Tesla logo is seen in Los Angeles, California U.S. on January 12, 2018. REUTERS/Lucy Nicholson

Morgan Stanley analysts said in a report after Tesla’s earnings announcement that they “see near-term margin headwinds due to (new) challenges in ramping up new production, particularly in Berlin.”

Tesla executives acknowledged some continued tightness in the supply of older-generation microchips, but said there were no major problems with the supply of chips and batteries, barring unexpected COVID-related shutdowns.

The EV maker posted an adjusted profit of $2.27 per share for the second quarter ended in June versus analysts’ consensus estimate of $1.81.

Automotive gross margin fell to 27.9% from a year ago and the previous quarter.

Total revenue was $16.93 billion from $18.76 billion in the previous quarter, ending the streak of posting record revenue in recent quarters. Analysts had expected $17.10 billion, according to Refinitiv. Read more

Bitcoin-to-Cash

Tesla said it converted about 75% of its bitcoin purchases to fiat currency, adding $936 million in cash to its balance sheet.

Tesla was sold to increase liquidity when it was uncertain how long the Covid lockdown in China would last, Musk said. Tesla has not sold any of its holdings of the Dogecoin cryptocurrency.

“It shouldn’t be taken as some judgment on Bitcoin,” he said, adding that Tesla was open to increasing its cryptocurrency holdings in the future.

Musk said in May last year that Tesla would not sell its bitcoins.

Hargreaves Lansdown analyst Laura Hoy said, “Bitcoin’s loss points to an important part of the Tesla investment case – its eccentric owner. While Musk’s impressive innovation has served the company well, his personal nature is starting to raise governance questions”.

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Reporting by Hyunjoo Jin in San Francisco and Nivedita Balu in Bengaluru; Editing by Anil D’Silva, Peter Henderson, Matthew Lewis, Leslie Adler and Himani Sarkar

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