Tesla's earnings report is bleak: increasing income does not increase profits, and the double-edged sword effect of the price reduction strategy appears

In the broad stage of the global automotive industry, every financial release is a big test of corporate strength and strategy. Recently, a number of multinational car companies have shown the report card of the second quarter or the first half of 2024, of which, Tesla as the leader in the field of electric vehicles, its performance report unexpectedly revealed a "bleak" shadow. Under the surface of revenue growth, the sharp decline in net profit has not only caused widespread concern in the market, but also deserves our in-depth analysis of the truth and logic behind it.

Tesla, a brand once known for technological innovation and disruptive pricing strategies, is now struggling to grow revenue without increasing profits. Second-quarter results showed that while sales rose 2 per cent year-on-year to $25.5bn, net income plunged by nearly half to $1.494bn. Behind this data, Tesla has adopted a price reduction strategy in many markets around the world, aiming to stabilize its market position with price advantages and increase sales. However, this strategy is like a double-edged sword, although sales have picked up in the short term, but in the long term, it has seriously eroded profit margins.

Of particular note, Tesla's automotive division sales fell 7%, and global EV sales fell 5% to 444,000 units. This means that even under the stimulus of the price reduction strategy, Tesla has failed to achieve substantial growth in sales, but the price war has led to a further decline in gross profit margin. In the second quarter, Tesla's gross profit margin fell 1.8% quarter-on-quarter, and the average unit price also fell from the same period last year. This raises the question of whether Tesla's price reduction strategy is really effective, and whether it is worth the cost of profit.

Tesla's electric car business has always been a proud capital, but recently it has frequently come out of the bad news. It can be seen from the financial report that the loss problem of Tesla's electric vehicle department is still severe, especially in the face of increasingly fierce market competition, Tesla's investment in technology research and development, capacity expansion and other aspects continues to increase, while cost control is powerless. In addition, with the decline of new energy vehicle subsidy policies around the world, the cost pressure faced by Tesla will be further increased.

Even more worrying is that Tesla's performance in the Chinese market is not satisfactory. As the world's largest market for new energy vehicles, China has a pivotal position for Tesla. However, Tesla's sales in the Chinese market have shown a downward trend, which not only reflects its reduced competitiveness in the Chinese market, but also indicates that its global strategy may face adjustment.

The reason why Tesla chose to reduce the price guarantee is largely out of anxiety about market share. With the increasing maturity and competition of the new energy vehicle market, Tesla is facing challenges from many brands at home and abroad. To stay ahead of the curve, Tesla has had to adopt a more aggressive pricing strategy. However, this strategy brings two risks: one is to damage the brand image and brand value; Second, it leads to a serious compression of profit margins, and may even incur losses.

In the long run, Tesla needs to find a way to balance maintaining market share while ensuring profitability. Otherwise, blindly cutting prices will only let Tesla fall into a vicious circle and it is difficult to extricate itself.

Tesla's decline is not a fluke, but a concentrated explosion of problems it has been building up for a long time. First, Tesla's capacity expansion is too fast, resulting in insufficient capacity utilization, which in turn increases production costs. Second, although Tesla's investment in technology research and development is huge, it has not formed enough technical barriers and competitive advantages. Finally, Tesla also has many problems in supply chain management, quality control and other aspects, which have affected the competitiveness and profitability of its products to varying degrees.

What's more, Tesla's stock price has been in a serious bubble for a long time. With the decline in performance and the intensification of market competition, Tesla's stock price is also facing huge downward pressure. Once the bubble bursts, Tesla will have to face a more severe market environment and investor skepticism.

Tesla's performance decline has sounded a warning to us: in the increasingly mature new energy vehicle market today, it is difficult to maintain a leading position with price cuts and marketing means alone. Tesla needs to pay more attention to technological innovation, cost control and supply chain management to ensure its long-term competitiveness and profitability. At the same time, investors also need to maintain a rational and prudent attitude, do not blindly follow the trend to hype Tesla's stock price. After all, in the brutal competition of the market, only the enterprises with real strength can laugh last.