Tesla CEO Elon Musk voices concern about interest rates after revenue miss, hesitancy on Mexico plant

Elon Musk, the CEO of Tesla, expressed his concerns about high interest rates affecting car buyers on Wednesday. He also mentioned that the electric vehicle company is reconsidering its plans for a factory in Mexico, given the current economic climate. This comes after Tesla failed to meet Wall Street's expectations for the third quarter in terms of gross margin, profit, and revenue. Musk stated that he is hesitant about fully committing to the Mexico factory project. He said, 'If the macroeconomic conditions are stormy, even the best ship is still going to have tough times. ' This is a change from his statement a year ago when he claimed that Tesla was 'recession resilient. ' Tesla's shares fell more than 4% in after-hours trading on Wednesday, having already closed down 4. 8%. Despite a series of price cuts, Tesla has managed to maintain demand. However, Musk spent a significant portion of the call expressing concerns about further expansion. He fears that rising interest rates could render cars unaffordable. The price of the popular Model Y SUV remained 'almost unchanged' for consumers, even after Tesla's price cuts, due to higher financing costs. In March, Tesla announced plans for a new factory in Mexico's northern state of Nuevo Leon. The state government estimated the project would cost more than US$5 billion, but Tesla has yet to provide a capital cost forecast. When pressed for details on the factory, Musk referred to the 2009 bankruptcy of General Motors and Chrysler, stating that it left him 'scarred. ' He also mentioned the 'enormous challenges' involved in reaching volume production for Tesla's long-delayed Cybertruck pickup and ensuring it generates positive cash flow. Tesla's aggressive price cuts this year have significantly impacted its gross margin, particularly in China where it faces stiff competition from local carmakers. The company is attempting to weather the price war it initiated, absorbing any global demand for electric cars even as high interest rates and lower price tags from competitors dampen EV sales. Some analysts suggest that Tesla may need to further reduce prices to meet its annual production target. In the third quarter ending in September, the gross margin fell to a more than four-year low, and the company signaled it would continue to cut production costs to boost profits. Nevertheless, it adhered to its annual production target of 1. 8 million cars, indicating that the price cuts were somewhat effective in maintaining demand. Jesse Cohen, a senior analyst at Investing. com, questioned whether this is a temporary situation or indicative of a larger shift among consumers. He suggested that rising interest rates and a weaker economic backdrop could deter consumers from making big-ticket purchases. Tesla's stock has more than doubled this year following a slump last year. Investors are betting that the company will outperform its rivals in an uncertain economy and receive a long-term margin boost from its self-driving software. However, the shares are still about 40% lower than its record high reached in 2021. Tesla's gross margin dropped to 17. 9% in the quarter ending in September, compared with 25. 1% a year earlier, before it began cutting prices. In the second quarter, Tesla reported a gross margin of 18. 2%. Wall Street had expected Tesla to post a margin of 18. 02%, according to 21 analysts polled by Visible Alpha. According to LSEG data, an average of 17 analysts polled expected 18. 25%. The automotive gross margin, excluding regulatory credits, fell to 16. 3% in the third quarter from 18. 1% in the second quarter. Margins fell despite a roughly US$2,000 per vehicle reduction in raw material costs in the past quarter. Tesla stated that its margin was affected by the underutilization of new factories and an increase in operating expenses driven by its upcoming Cybertruck model and other projects. Revenue in the third quarter rose 9% to US$23. 35 billion, compared with analysts' estimates of US$24. 1 billion. This marked the slowest pace of growth in more than three years. Its average revenue per unit declined by nearly 11% from a year earlier. On an adjusted basis, Tesla earned 66 cents per share. Analysts had expected a profit of 73 cents per share, according to LSEG data. It was not immediately clear if the numbers were comparable. Tesla stated that its energy business, which sells solar panels and batteries, and its services business, had become a meaningful contributor to profit with more than US$500 million in combined gross profit in the quarter.