Tesla once again beat earnings forecasts in the second quarter but struggled to sustain profitability on its increasingly discounted electric vehicle lineup.
The electric vehicle brand reported $24.93 billion in revenue for Q2, slightly over the maximum $24.22 billion expected by analysts. The amount represents a 47% increase over the year before and a 6.8% increase compared to the first quarter. Tesla has now seen earnings improve on a quarterly basis for more than a year.
However, other details from the company’s report overshadow this positive news. Despite the massive increase in revenue, net income for the period reached only $2.7 billion, a gain of 20% year-over-year and roughly 7.6% more than in Q1. On the other hand, Tesla saw electric vehicle deliveries hit 466,140 units in the second quarter, an increase of 10% from the January-March period and 83% from Q2 2022.
These two data points suggest that the company’s profit margins are taking a significant hit. Of the automaker’s aforementioned $24.93 billion in revenue in the second quarter, roughly 10.8% counted towards net income, rising only slightly from the previous quarter’s 10.7% and declining from the prior year’s share of 13.3%. This means that while Tesla saw revenue and deliveries rise 6.8% and 10% from Q1 2023, and 47% and 83% from Q2 2022, its margins grew only 0.1% and dropped 2.5% over the same periods. While earnings are still ultimately higher thanks to rising demand, this trend raises questions about how long the company’s electric vehicle business will continue to grow. While volume has certainly increased, the car manufacturer is operating in a market where it owns the vast majority of sales. If other automakers begin to make sizeable gains in the segment, Tesla may struggle to hold onto investors if it cannot solve for unstable profit margins.