Tesla will resume reducing the costs of its electric vehicles and push for increased production rates in the coming years, according to the company’s Q4 2022 shareholder letter, which was published today.
Massive price cuts across Tesla’s EVs
The announcement follows massive price drops across Tesla’s electric vehicle lineup worldwide, sending shockwaves through the automotive industry and prompting some competing executives to criticize the American EV maker’s decision.
Tesla began its shareholder note by stating that the company had a record-breaking fourth quarter and year in revenue, operating profit, and net income.
As we progress into 2023, we know that there are questions about the near-term impact of an uncertain macroeconomic environment, and in particular, with rising interest rates. The Tesla team is used to challenges, given the culture quired to get the company to where it is today. In the near term, we are accelerating our cost reduction roadmap and driving towards higher production rates while staying focused on executing against the next phase of our roadmap
Tesla stated on the price cuts strategy
Tesla assures the investors
This may understandably make some investors worry about the American EV maker’s profitability, as reducing the price of the cars directly impacts revenue.
But Tesla assures everyone involved that everything will be fine, essentially predicting the future by looking to the past:
Our ASPs (average selling price) have generally been on a downward trajectory for many years. Improving affordability is necessary to become a multi-million vehicle producer. While ASPs halved between 2017 and 2022, our operating margin consistently improved from approximately negative 14% to positive 17% in the same period. This margin expansion was achieved through the introduction of lower-cost models, buildout of localized, more-efficient factories, vehicle cost reduction, and operating leverage
Tesla stated on the price cuts strategy
