🚗 Tesla's sacrificing profit for world domination

What’s going on here?

Tesla’s price-cutting tactic has slashed the EV maker’s margins, but Musk seems willing to pay the price for ultimate supremacy.

What does this mean?

Tesla’s slimmed-down prices might’ve hoisted sales up by 24% last quarter – but as expected, those discounts ate into profit margins big time. A host of profitability measures dropped to their lowest in years, well below the record highs of last year. In fact, the firm’s profit margins suffered even more than some analysts’ already reduced forecasts had predicted. But Musk’s so sure that lower profit in the short run will be outweighed by heftier market share in the future that he’s set to double down on this strategy. Mind you, with early results showing price cuts have only slightly lifted the number of cars Tesla’s sold this year so far, skeptical investors still sent shares down 6%.

Why should I care?

The bigger picture: Method to the madness.

In fairness, Tesla’s industry-leading margins do give the firm a lot to play with: the EV maker’s operating profit margin sat at 11.4% last quarter, casting a Cybertruck-sized shadow over rivals General Motors’ 6.6% and Ford’s 4% in 2022. What’s more, governments around the world are pushing for stricter emission restrictions, which means putting more EVs on the road. That could make it the right time for Tesla to assert its dominance, later leveraging that sway to profit from rolling out more autonomous and robotaxi features. Layer on Musk’s reassurance that orders are now outpacing production, and Tesla’s plan could soon see it relax on cruise control.

Zooming out: Back against the wall.

French carmaker Renault isn’t being drawn in yet, though, saying this week that it has no plans for drastic price cuts on its EVs. But some analysts reckon Europe’s third-biggest EV brand might have to cave to stay in the game – after all, Tesla’s Model 3 is now cheaper than Renault’s electric Megane in France.

What’s going on here?

American Express (AmEx) reported mixed results on Thursday, even after customers swiped their slick and shiny cards like they were going out of style.

What does this mean?

You can get credit cards for free, so AmEx has spent years revamping the benefits of its popular platinum card to justify the $695-a-year fee. Looks like that’s more than paid off, helping push up the amount spent on its cards by a better-than-expected 14% last quarter, with customers splashing out on more leisure activities like travel and dining. And because AmEx collects fees from merchants each and every time customers swipe their shiny cards, that sounds like a recipe for plump profit. But the firm’s playing it safe, upping the cash it’s put aside – just in case its well-to-do customers start feeling the economic downturn like the rest of us – to over $1 billion. So despite all that flashy spending, AmEx’s profit slipped 13%.

Why should I care?

The bigger picture: Big spenders, small hopes.

Credit card companies thrive when folks are spending more, and AmEx’s customers will have been shielding the firm from the general trend last quarter. See, consumer spending’s been dropping off, with US retail sales falling for the second-straight month in March. But AmEx’s caution could mean it’s now seeing worrying signs among its usually more financially resilient customers. And it wouldn’t be the only one: recent data showed that higher-income households grew more pessimistic in April.

Zooming out: The land of doom and gloom.

Consumer spending makes up two-thirds of the US economy, so the fact that more spenders might be thinking twice isn’t exactly reassuring. And the Federal Reserve’s latest assessment won’t inspire much confidence, either: the central bank believes the country’s economy has essentially stalled in recent weeks, which could bolster the cases of some economists who predict a recession in the second half of this year.