CHARGING AHEAD: TESLA'S NEW SUCCESSES
Dear clients,
Tesla's strategy of boosting sales by lowering prices probably led to its strongest revenue growth in five quarters, while profitability fell to a three-year low in the April-June quarter.
Since late last year, the Elon Musk-led electric car maker has launched a price war to stimulate demand and stifle competition from older automakers such as Ford Motor and Chinese rivals including BYD.
Tesla is expected to report on Wednesday that gross margins fell to 18.9% in the second quarter, according to 19 analysts surveyed by Visible Alpha. That's down from 20.2% in the previous quarter and 25.9% a year earlier.
With electric car sales slowing, Tesla has been aggressively trying to capture a bigger share of the U.S. charger market in an effort to diversify its revenue streams. It has entered into agreements with companies such as Ford Motor and General Motors to use its North American Charging Standard (NACS), allowing its market value to more than double to $880 billion this year. Following these partnerships, several charging companies have announced their intention to adopt Tesla's standard.
While this will not contribute much to second-quarter revenue, which is expected to grow 45.2% to $24.59 billion, analysts predict it will significantly boost the company's earnings going forward.
"IT'S NOT SO BAD": GOLDMAN SACHS ON POSSIBLE US RECESSION
Dear clients,
Goldman Sachs chief economist Jan Hatzius said on Monday that the bank is lowering the probability of a US recession starting in the next 12 months to 20%, down from its previous forecast of 25%.
"The main reason for our downgrade is that recent data have reinforced our confidence that a decline in inflation to an acceptable level will not require a recession," the bank said in a research note.
Market expectations for a so-called "hard landing" - a scenario in which interest rate hikes by the U.S. Federal Reserve drive the economy into recession - were recently challenged by data showing consumer and manufacturing price inflation slowed in June. Slowing inflation is likely to lead to looser monetary policy in the future. Meanwhile, economic activity remains resilient despite the significant increase in borrowing costs since the Fed's rate hike campaign began in early 2022.
As for the current inversion of the Treasury yield curve, which is generally seen as a harbinger of an impending recession, Hatzius said it reflects and simultaneously confirms "overly pessimistic" economic forecasts.
An inverted yield curve usually signals that the Fed will cut rates to stimulate the economy. However, according to a Goldman Sachs economist, there is a "plausible path" for the Fed to cut interest rates just because of lower inflation.