Tesla Inc. (TSLA.O), slashing prices to boost sales, will only benefit from a recent commodity price drop in the year’s second half.
On Wednesday, Tesla CFO Zachary Kirkhorn said battery material prices have been a huge drag for two years, and Tesla was “still kind of at the maximum of pain for commodities in our cost structure.”
Tesla’s first-quarter margins slipped to 19.3%, below the average market estimate of 22.4%, dampening hopes that this year’s commodity price drop would help.
Tesla cut prices six times in 2023, which Wall Street analysts believe increased rivalry with Ford Motor Co (F.N.) and Lucid Group Inc (LCID.O).
Cobalt and lithium, the main components in E.V. batteries, have fallen by 50% and 40% this year. Nickel has fallen 20% this year and nearly 50% since March 2022.
Analysts said that long-term contracts, notably for lithium, which is bought at rates different from spot prices, delayed the benefits of decreasing battery-material prices.
Due to falling prices, minerals research group Benchmark Intelligence suggested revising the contracts.
“E.V. manufacturers have a huge amount of power in these contract negotiations, so we do see contract structures getting revised especially now that prices are decreasing,” said Benchmark Intelligence’s head of pricing, statistics & indices, Daniel Fletcher-Manuel.
Due to economic uncertainty and a planned subsidy halt in China, the world’s largest and fastest-growing market, lithium prices have fallen.
As E.V. demand drops, CATL (300750. S.Z.), a Tesla supplier, has offered exceptional reductions. As a result, analysts expect prices to fall further.
Rystad Energy expected the lithium market gap to fall to 20,000 to 30,000 tonnes LCE this year from 76,000 tonnes LCE in 2022.
“It’s worth mentioning that the price of lithium has dropped significantly,” Musk said on a post-earnings call.
Tesla will benefit if its mega factories in Austin and Berlin increase production.
Tesla shares plunged 7% in early trade after Elon Musk stated the business would emphasize sales growth over profit.
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