Tesla pledges to make cheaper cars as problems mount

Tesla has said it will build cheaper cars and win approval for its self-driving software in Europe this year after seeing sales fall at the sharpest rate in at least a decade.

Elon Musk’s electric car firm told investors it had started “first builds of a more affordable model in June” while posting a slump in car deliveries and shrinking profits.

The firm is struggling as it faces cuts to US government support for electric cars, competition from Chinese carmakers and a dent to Tesla’s brand from Musk’s controversial political activities.

Meanwhile, Tesla told investors that US tariff policy had cost the firm $300m (£221m) over the three months to June and warned of further pain ahead.

Tesla’s chief financial officer Vaibhav Taneja said the end of a tax credit for buyers of electric cars in the US was also likely to hurt.

The carmaker did not provide an update on its outlook for the year, warning it was “difficult to measure the impacts of shifting global trade and fiscal policies”.

Sales fell by 12% to $22.4bn – the biggest drop in at least a decade – after deliveries plunged 14%. Profit shrank by 16% to $1.1bn.

Musk told investors that he expected the company’s sales in Europe to increase once customers there are allowed to use the firm’s self-driving software.

He said he expected the first approval to come in the Netherlands but that the firm also hoped to win sign-off from the European Union, despite it having a “kafkaesque” bureaucracy.

“Autonomy is the story,” Musk said. “Autonomy is what amplifies the value [of the company] to stratospheric levels.”

But the firm’s once-fat margins have shrunk sharply, with profits down in five of the last six quarters.

Tesla’s share price has fallen roughly 30% from a peak last year, after Musk’s support for Donald Trump helped him win the White House.

Since then, relations have soured between the former so-called “first buddy” and the US president.

Musk has been vocal about his opposition to Trump’s tax and spending bill, calling it “utterly insane”. He has focused his attacks on the bill’s contribution to America’s mounting debt, though Trump maintains Musk is upset about decisions to end government programmes supporting electric cars.

Peter Bardenfelth-Hansen, a former head of development for Tesla for Europe, the Middle East and Africa, told the BBC’s Today programme that selling tax credits to other carmakers “has probably been what has enabled Tesla to grow into the masterdom that it is today”.

“That was a big, big earner for Tesla because there is absolutely no capital expenditure involved, it was directly onto the bottom line of Tesla’s earnings on a quarterly basis,” he said.

“With that slowing, dissipating, that’s going to be a major blow to their income.”

As shares in Tesla tumbled 9% on Thursday, Trump took to social media to say he wanted Musk’s businesses to succeed.

“Everyone is stating that I will destroy Elon’s companies by taking away some, if not all, of the large scale subsidies he receives from the US Government. This is not so! I want Elon, and all businesses within our Country, to THRIVE, in fact, THRIVE like never before!” he wrote.

Investors had cheered after Musk said earlier this year he was leaving the Trump administration, hoping he would focus on the company and steer clear of politics.

The announcement came shortly after mounting concerns about the company had forced the head of the company’s board to publicly deny it had started looking for a replacement for Musk.

But the messy break-up with the White House, as Musk has flirted with starting a new political party, has kept investors on edge.

Earlier this month, Tesla investor and Trump supporter James Fishback wrote to the company’s board, calling on it to determine if Musk’s political ambitions were “compatible” with his obligations as chief executive.

Analyst Dan Ives, known as a fan of the company, also urged the board to impose guardrails, prompting Musk to snap back on social media: “Shut up, Dan”.

Musk’s “shenanigans” have cost Tesla some of the passionate support that had allowed it to grow without spending on advertising, said Daniel Binns, global chief executive of brand consultancy Elmwood.

With the firm now facing much stiffer competition, he said it was unlikely that the launch of a new model would fix the firm’s problems by itself.

“It will help… but it’s got to be more than just another car,” he said. “The market’s caught up to them.

Mr Bardenfelth-Hansen said: “We have been waiting for everything that Elon has been promising for a number of years.”

He said that in 2006, Musk had drawn up a “secret masterplan” promising cheap electric vehicles.

“That’s almost 20 years ago now,” he said. “We’re still sitting at the tip of our chairs waiting for the cars that he’s promising.”