Tesla has created bad news in the past few months, but one statistic shows that the company isn’t trending as negatively as some would assume—high profit margins.
- Despite a very difficult year last year, Tesla currently stands as a market leader in electric vehicle (EV) production, as it continues to expand and see new business, holding a 58% market share of the entire EV market.
- Additionally, the company has something no other automotive company has—high gross margins.
- Tesla’s annual report shows the company’s gross margin is 28.5%, while the global average profit margin for automakers is 7.5%. Due to a lack of dealerships and more straightforward mechanics, the company’s vehicles can draw a much higher profit margin than other automakers, The Street notes.
Why It’s Important
Tesla suffered a tough year in 2022, seeing a 69.1% drop in valuation due to the company’s failure to meet expansion targets, the company’s EV market share diminishing, and the chaotic online behavior of CEO Elon Musk. The company has recently seen notable setbacks, such as its investors publicly calling for it to distance itself from Musk, and a drop in new and used car prices.
Even as the company struggles with meeting growth projections, Tesla is still seeing enormous cash flow and is building its nest egg over time, constantly expanding its ambition, launching new vehicles like the cyber truck, and preparing to announce its scalability goals on March 1.
“Large incumbent carmakers sell their cars at low to zero true margin. Most of their profit is selling replacement parts to their fleet, of which 70% to 80% are past warranty. Like razors & blades,” tweeted Elon Musk in September 2021.
“This is the fundamental reason why Tesla was the first new American car company to reach sustained positive cash flow since Chrysler ~100 years ago. The product has to be compelling enough to overcome a fundamental cost disadvantage,” he further elaborated on February 11.