A recent drop in commodity prices would only help Tesla Inc’s battered margins in the year’s second half. It is a further short-term pain for the electric-car maker. Besides, Tesla has been busy slashing prices to boost sales for a while now.
Tesla’s Chief Financial Officer Zachary Kirkhorn expressed his thoughts on the matter. He says battery material prices have been a major drag for the past two years. Nonetheless, the company is “still kind of at the maximum of pain for commodities in our cost structure.”
The comments dimmed hopes that this year’s drop in commodity prices would bring respite to Tesla. The company’s first-quarter margins fell to a more than two-year low of 19.3%. Therefore, it missed the average market estimate of 22.4%.”
Remarkably, Tesla reduced pricing six times this year. Wall Street analysts believe this step would increase rivalry with conventional manufacturers. Tesla has experience cooperating with Ford Motor Co. Besides, it collaborated with startups such as Lucid Group Inc.
Furthermore, Nickel prices dropped from their peak as EV demand reduced.
Analysts blamed the lag in gains from lower battery material prices on long-term contracts, particularly for lithium, purchased at rates that differ from spot prices.
“With the exception of lithium,” Morningstar analyst Seth Goldstein said, “I would imagine that falling prices for many of the other raw materials that Tesla uses should be helpful in resulting in overall cost reductions.”
More important fall downs in the commodity market
Lithium prices are down as mine output rose and EV demand stagnated due to rising economic uncertainties and a scheduled suspension of subsidies in China, the world’s largest and fastest expanding market.
Lithium prices dropped from historic highs.
The drop has even prompted uncommon discounts from CATL, a Tesla supplier, and analysts predict that prices will decrease further as EV demand falls.
Rystad Energy forecasts that the global lithium market supply-demand gap will be significantly reduced in 2021, from 76,000 tonnes of lithium carbonate equivalent (LCE) in 2022 to an estimated 20,000 to 30,000 tonnes of LCE. This would be beneficial to Tesla. It increases production from its large-scale manufacturing plants located in Austin and Berlin.
“It’s worth noting that the price of lithium has dropped significantly, Musk remarked. He announced a conference call following the company’s results announcement.
Tesla shares tumbled 8% in premarket trade. Therefore, such a drop dragged down car equities from Europe to the United States. Elon Musk stated that the business would prioritize sales growth over profit.
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