Tesla is facing supply shortages, logistics bottlenecks, and rising costs as it rapidly ramps up production of its electric vehicles. While the issues have improved in recent months, they continue to be immediate challenges, according to Tesla’s financial update for investors.
Revenue was lower than expected in the three months ending in September due to lower-than-expected car sales. However, at $21.45 billion (£19.12 billion), it remained more than 50% higher than a year ago.
Tesla, led by billionaire Elon Musk, has expanded rapidly in recent years, opening new factories in the United States, China, and Germany and increasing output.
In the third quarter, the company delivered 343,000 vehicles, a record that was up more than 40 per cent from the same period last year.
The company manufactured more vehicles than it sold, raising concerns that demand may be slowing as rising prices, higher borrowing costs, and a significant economic slowdown in the key China market discourage buyers.
Musk acknowledged China’s weakness but dismissed suggestions that demand was cooling.
When Tesla revealed the delivery figures earlier this month, the company explained that the discrepancy was due to difficulties in finding vehicles to transport cars to customers.
“There weren’t enough boats, there weren’t enough trains there weren’t enough car carriers,” he said on a conference call to discuss the results, adding that the firm expects to sell every car it makes.
Deliveries of its own highly anticipated electric truck are set to begin in December, according to the company. Profit was $3.3 billion, up significantly from the previous year.
However, concerns about Tesla’s growth trajectory, as well as Mr Musk’s billions of dollars in stock sales as he prepares a $44 billion takeover of Twitter, have weighed on the company’s shares in recent months.
This year, the share price has dropped 40%, erasing billions of dollars from the company’s value. Its stock dropped another 4% in after-hours trading on Wednesday.
“I think Tesla’s had a hard quarter and the market is responding to that,” Sarah Kunst, managing director of Cleo Capital, told the BBC’s Today programme.
“The auto industry in general right now is having a very hard time because supply chain problems persist and the batteries – particularly for electric vehicles – are hard to come by,” she said.
“And the reality is that Tesla used to be the only place to go to buy a higher-end electric car and that’s increasingly not the case.”
Tesla owns the majority of the electric vehicle market in the United States, but it faces far more competition in Europe and China, where such vehicles are more popular.
Rivals in the United States have also increased their efforts.
BMW announced on Wednesday that it would invest $1.7 billion in expanding electric vehicle production in the United States.
Elon Musk, no shrinking violet when it comes to self-promotion, stated a few months ago that demand for Teslas was through the roof.
“Right now demand is exceeding production to a ridiculous degree,” he said.
And yet, based on these figures, that does not appear to be the case. In fact, Tesla produces more cars than it sells.
Not only that, but a number of financial pressures are eroding profitability. Profits are being harmed by supply chain issues and rising raw material costs. Tesla investors, on the other hand, are far more concerned with the company’s long-term prospects than with short-term financial pressures.
That is why the uncertainty about Tesla demand is so damaging. It helps to explain why Tesla’s share price has fallen despite a seemingly solid set of results.
It also explains why Mr Musk tried to put a stop to talk about demand issues during the earnings call.
“I can’t emphasise enough we have excellent demand for [the fourth quarter] and we expect to sell every car we can make as far in the future as we can see,” he said.
Many Tesla investors, however, are concerned that Mr Musk isn’t devoting enough time to the company, despite his commitment to buy Twitter. These findings are unlikely to change that opinion. (Adapted from BBC.com)