Tesla Inc.’s (NASDAQ: TSLA) most recent financial report catered to the aspirations of bullish investors with tantalising glimpses into the eagerly awaited Cybertruck and insight into the internal projection of the Dojo supercomputer’s computational prowess. However, one pivotal question continues to elude a definitive answer: Why is there a disparity between Tesla’s profit margins and market capitalisation?
Although the company boasts industry-leading margins, Tesla’s automotive gross margin receded to just above 18%, marking an eight-percentage point decline from the previous year and reaching a four-year low. In a broader context, Tesla’s operating margin, encompassing all facets of its business, also dipped by five percentage points from the preceding year, settling below 10% and representing the lowest level in over two years.
The narrative underlying these financial dynamics traces back to Tesla producing more vehicles than it has managed to sell for five consecutive quarters, forcing the company to resort to the classic automotive tactic of reducing prices to stimulate sales. Adding to the intrigue is the fact that during this same timeframe, Tesla’s market capitalisation surged by $132 billion despite worrisome margins. This year alone has witnessed a market cap increase of over $530 billion, which places the current standing of $923 billion within reach of the trillion-dollar threshold. Is the Dojo supercomputer prematurely inflating Tesla’s market cap, or is there substantiation to the inflation?
Piece written by Alexa Smith, Trive Financial Market Analyst
Sources: Tesla Inc., Bloomberg, The Washington Post, Nasdaq, CNBC
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
