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Tesla to Launch "Affordable" Small Car Next Year

Tesla has accelerated its vehicle development plans and aims to commence mass production of its yet-to-be-revealed economical electric car in the second half of 2025.
The company is attempting to boost its profitability through cost reductions. This news prompted Tesla's stock price to surge by 9%.

Tesla's first quarterly report, released after the market closed in New York on Tuesday, did not boast impressive figures. The largest American electric car manufacturer reported a 9% decline in revenue to $21.3 billion (analysts had expected $22.15 billion), while net profit plummeted by 55% to $1.13 billion.

However, a silver lining for investors was the smaller-than-expected decrease in the gross margin. Analyst consensus from Visible Alpha had predicted a margin of 15.2%, down from 19.3% a year ago. The report, however, cited a margin of 17.4% the lowest since the fourth quarter of 2017 for Tesla.

TESLA'S ENERGY BUSINESS SEES VIBRANT GROWTH

Regarding future prospects, the company reaffirmed that this year's vehicle sales revenue could "significantly lag" behind last year's figures, though no specific numbers were provided. On a brighter note, Tesla's energy business has shown remarkable momentum, potentially surpassing the vehicle manufacturing division in growth rate this year.

The energy storage manufacturing division reported a 7% annual increase in the first quarter, with revenues of $1.64 billion, albeit still only one-tenth of the automotive segment's size. The company is currently navigating a transitional period between the ramp-up of the Model 3/Y platform and the introduction of the next electric platform along with new car models, as well as achieving complete autonomous driving capabilities. Tesla ensures it has sufficient liquidity for development efforts and the financing of this transitional phase.

Priority is given to developments related to artificial intelligence and the execution of their cost-efficiency program to enhance competitiveness.

ACCELERATION IN DEVELOPMENT OF NEW MODELS

Tesla has updated the launch timeline for its new models, confirming that the most affordable Tesla will indeed be released in the second half of 2025, though no further details were provided at this time. The new models can be assembled on existing production lines, offering significant cost savings.

Utilizing their current global manufacturing capacity of nearly three million units per year more flexibly will allow the production of various model series to be adjusted according to location and current market demands. The stock price jumped by 9% in post-market electronic trading following these positive developments.

Tesla is facing challenging times amid intensifying competition and a general decline in demand for electric cars, complicating matters for Founder and CEO Elon Musk.

Early this year, in its fourth-quarter report from the previous year, the company indicated that maintaining its customary double-digit sales growth would not be feasible this year, providing a "significantly lower" forecast without specifying exact figures.

SALES STRUGGLE

The first quarter did not bring shining results, with reports of 433 thousand cars manufactured and 387 thousand sold. This is a decline from the previous year, where 441 thousand vehicles were produced and 423 thousand were sold.

Both figures show a decrease while inventories rise. Tesla explained that production at their Grünheide unit was sabotaged by German climate activists, production adjustments for the refreshed Model 3 version at the Fremont facility in Nevada caused work stoppages, and the third reason was difficulties in exporting Teslas manufactured in China.

Due to conflict in the Red Sea, ships had to take longer routes, leading to delays in deliveries. Furthermore, the fewer cars manufactured and sold were marketed at lower prices than before, delivering another blow to the once-celebrated profit margin.

However, a 2-5% price cut in the United States, followed by China and some key European markets last weekend, will appear as a negative factor in the current quarter's statistics.

The electric car market is fiercely competitive, and Tesla no longer sets the pace but faces formidable Chinese rivals like BYD, Nio, Changan, Xiaomi, Xpeng, Geely, and SAIC, among others, facing less investor pressure than Tesla. In response to these challenges, Elon Musk decided on layoffs mid-month, with every tenth employee from Tesla's global workforce of 140,000 receiving their notice along with some severance.

This move brings Tesla in line with current trends, but a 43% slump in share prices this year indicates that more is needed to support the company. Investors reacted to the declining profit margin with stock sales, while conflicting reports and denials from the company only increased uncertainty. According to a Reuters report in March, development and investment plans for the originally promised 2025 Model 2 affordable small car were shelved, highlighting the need for a broader and refreshed product range from both investors' and consumers' perspectives. The halt in the project was internally justified by the inability to compete with Chinese mass-market cars, lending credibility to the news report, which Elon Musk did not explicitly deny beyond accusing Reuters of lying.

The market was puzzled by Tesla's focus on a robotaxi service set to debut this summer with full autonomous capabilities, now offered to Americans for a promotional price of $8,000, down from the previous $12,000.

THE CYBERTRUCK IS NOT YET A SUCCESS STORY

While the robotaxi debut is pending, the Cybertruck, known for its futuristic design, made its debut last November. However, there have been issues with its production, and all previously completed units 3,900 in total had to be recalled for repairs due to issues with an autonomously functioning accelerator. Many doubt whether the promised production capacity of 200,000 units for next year can be achieved.

Tesla remains the world's most valuable car manufacturer for some time, valued at $468 billion before the earnings report, but its capitalization has dropped to just two-thirds of its historic peak in November 2021.
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