Tesla's aggressive price cuts may be what it takes to narrow it down from competitors
Tesla (TSLA.USWe have previously investigated aggressive price cuts by), but it seems that some investors are concerned that it is a sign that the company will weaken in the increasingly competitive EV market. However, if you take a close look at the margins of Tesla's competitors, such a move may be necessary for Tesla to put pressure on its competitors.
Tesla's gross profit margin is 25% and net profit margin is close to 15%. This is a much higher figure when compared to competitors' gross profit margins of 12 to 15% and net profit margins in the first half of the single-digit range of competitors such as Ford and GM.
The reason Tesla is able to enjoy more favorable margins lies in its economies of scale and vertically integrated production system. Since Tesla designs and manufactures battery cells and electric motors in-house, it is possible to reduce costs and increase efficiency.
Additionally, Tesla is investing in automation and robotics at the Gigafactory to increase productivity and reduce labor costs. Finally, Tesla's sales and distribution model mostly relies on online sales and direct stores, which also helps keep costs low.
Tesla, which has a fairly high profit margin compared to its competitors, seems to be able to afford price cuts without having a significant impact on its own earnings while directly putting pressure on competitors' profitability.
Price cuts are also actions that Elon Musk has advocated for Tesla to expand its market share, get a wider range of customers to use the company's products, and increase the number of units sold.
But for Tesla, it's not necessarily a rose-colored bed that has spread out. Next time, I would like to take a look at some parts of Tesla so that investment decisions can be made after obtaining more information about the risks of investing in Tesla.
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