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Tesla Raises CapEx in Pursuit of Production

Tesla Model3_16
Tesla Model 3 is among the company’s most popular models — and its cheapest.

On Monday, Tesla Inc. stated it is increasing its anticipated capital expenditures for 2023 as the manufacturer ramps up production to capitalize on the growing demand in electric vehicles.

In Tesla’s latest 10-Q filing, the company stated it expects outlays of $7 billion-to-$9 billion this year, an increase from its previous forecast of $6 billion-to-$8 billion, an estimate that’s expected to hold for the next couple years. 

The move comes even as Tesla’s automotive gross margins fell from 32.9% to 21.1% in the first three months of 2023, and it’s little wonder why. The Texas-based automaker has slashed seven times this year, the latest occurring last week, slashing some Model Y and Model 3 nine days after its last price cut. The price of the base Model 3 has dropped 11% this year, while base Model Y has seen its price plunge by 20%. 

What’s the real price?

Tesla Model Y 2
Tesla’s Model Y, along with the Model 3, account for 96% of sales.

While the cuts aren’t helping margins, they don’t appear to be helping market share either. Tesla’s 59.6% of California’s BEV market share in the first quarter of 2023 is down from 72.7% in 2022, according to a Reuters analysis. The state accounts for 16% of the automaker’s global sales. Certainly increased competition from General Motors, Volkswagen, Hyundai and Kia have had an impact.

But Tesla’s price cuts aren’t limited to the United States, as Tesla’s tariffs have been trimmed elsewhere as well, including China, Europe, Israel, Singapore, Japan, Australia and South Korea. 

That said, despite Tesla’s four-model line-up, the Model 3 sedan and Model Y crossover account for 96% of Tesla’s 2022 sales. To counter this, Tesla has pared the price of its priciest models, Model S and Model X, by $5,000. The former now starts at $84,990, the latter $94,990. The cuts follow Tesla slicing $10,000 from its Model X SUV price and $5,000 from the Model S.

Pushing production increases 

Tesla Giga Austin pre-production Oct. 2021
Tesla’s annual capacity stands at 2 million for 2023, a far cry from the 20 million units Elon Musk expects to sell in 2030.

But this an act of largesse on CEO Elon Musk’s part. He’s employing a tactic long used by legacy automakers he so regularly smears with impunity: he’s putting production ahead of profits.

Still, even with Tesla’s reduced margins, he has room to maneuver. And he has a promise to fill: sell 20 million electric vehicles in 2030, a tall order given the company’s current production capacity is 2 million annually. But achieving that in the face of a sputtering economy and rising interest rates will be a challenge.

But the company continues to spend money in pursuit of production, ramping up output at its factories in Austin, Texas and Berlin, Germany. Tesla is also planning to open a $5 billion Gigafactory in Nuevo Leon, Mexico, even as it already set aside $3.6 billion in January to enlarge its Gigafactory Nevada, manufacturing site of its long-delayed Semi truck and 4680 cell that will supply batteries for 2 million vehicles annually.

Tesla’s shares fell nearly 2% in trading Monday.

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