Tesla met with Deutsche Bank analysts and amazed them with Giga Texas' potential and success. The enormous factory is quite a spectacle, and Tesla is known for its massive efforts in manufacturing, which CEO Elon Musk believes is the key to continue leading in the industry. However, the analysts were honest about the reality of more price cuts and reduced profits ahead.
Tesla has struggled for most of its existence, and it has only been over the last few years that the US EV maker found true success. It's generating profits now, its margins are excellent, it's ramping up factories and making plans for more, and the list goes on and on. Interestingly, Tesla was heading right into its first big wave of true success right around the beginning of the global pandemic.
Since then, while Tesla has continued to stay at the top of its game, there has been much adversity. The company had to raise the prices of its vehicles throughout most of 2022, which didn't help. Then, it started dropping prices at the end of last year and has essentially been doing so ever since. This is likely because Tesla is finally at the point where it can produce more cars than there's a current demand for.
In order to sell loads of cars in a tough economy all while keeping inventory manageable, Tesla continues to cut prices and offer incentives. This looks good from one perspective because sales are going way up, but it also means crippling margins and reducing earnings going forward.
With all of that said, Deutsche Bank was still thoroughly impressed after its meeting and tour. In fact, the analysts admitted that they are "All in" and "encouraged."
However, the report goes on to say:
“We came away encouraged that Tesla could deliver cost improvements and efficiencies in the quarter ahead, which may help offset some of the pressures, but we still worry the company may have to take additional price cuts in a weakening environment, which could put further pressure on earnings.”
The analysts noted that they were impressed with the layout at Giga Texas, its overall design, and its high efficiency. They also made it clear that Tesla really is moving forward with the Cybertruck, despite some folks still doubting it will ever come to be. In addition, equipment is still being installed at the Austin factory, and manufacturing capacity continues to grow.
In the end, looking at the short term shows these analysts that Tesla may continue to have its ups and downs, which the rest of the industry is currently no stranger to. However, the mid- and longer-term prospects look very promising, and Giga Texas has really just begun.
