Tesla Inc TSLA CEO Elon Musk has defended the EV-maker's drastic fall in margins and said pushing for higher volumes and a larger fleet is the right choice versus a lower volume and higher margin.
"We expect our vehicles, over time, will be able to generate significant profit through autonomy. So we do believe we are like laying the groundwork here, and then it’s better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy. This is an extremely important point," he said at the company’s first-quarter earnings call conference.
Also Read: Everything You Need to Know About Tesla Stock
Shares of Tesla closed 2.02% lower on Wednesday and lost another 6.06% in extended trading, according to Benzinga Pro data. The EV-maker reported revenue of $23.33 billion for the first quarter, up 24% year-over-year.
Price Cuts: Tesla recently trimmed prices for some of its Model Y and Model 3 vehicles in the U.S. for the sixth time this year to boost demand as the competition among electric-vehicle makers intensifies. The string of price cuts appears to have taken a toll on the margins of the company. Tesla's operating margin fell 779 basis points to 11.4% during the first quarter compared to the same period a year ago.
When asked about the updated range of margins for the auto business going ahead, Musk stated it’s difficult to pinpoint and that macroeconomic factors would come into play.
"It depends on what the macroeconomic environment is like. So for example, if the Fed were to lower the rates, that would be super helpful for demand. If they raise them, that just raises the interest costs that buyers have to pay for to buy a car. So it reduces affordability and therefore, reduces demand," he explained.
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