Tesla profits come under pressure as costs rise and car prices fall

Several forces weigh on profits

Tesla said higher operating expenses for AI efforts and other research projects have weighed on profitability. Lower regulatory credit revenue and weaker gross profit from energy storage also contributed, while lower vehicle prices reduced revenue.

The company said it is working to lower manufacturing and operating costs. It expects profits from hardware to be joined over time by faster growth in AI, software and fleet-based earnings.

An analyst said research costs were up nearly 70% and operating margins had fallen to 2.6%. The analyst also characterized Tesla’s AI spending as broadly inefficient and said AI is already a major revenue source at SpaceX.

Tesla points to future growth

Tesla said autonomy subscriptions are trending upward and that it is offering product mixes tailored to different regions. It presented these areas as potential sources of profit growth. The company’s outlook is shifting toward income from software and fleet services alongside vehicle sales, even as lower prices weigh on revenue.

Merger committees and Roadster

During SpaceX’s earnings call on Tuesday, Musk said Tesla and SpaceX had each formed committees to examine a possible merger. Musk leads both companies and owns billions of dollars in stock in each.

Less than a week earlier, Tesla staged a Roadster demonstration. The sports car briefly jumped and twirled above a lineup of other Tesla vehicles. Tesla first promised to relaunch the Roadster nine years ago. Musk presented a prototype in 2017 and forecast a 2020 launch.