Tesla pledges to make cheaper cars as issues 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 Musks 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 Teslas brand from Musks 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.

Teslas 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 companys sales in Europe to increase once customers there are allowed to use the firms 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 firms once-fat margins have shrunk sharply, with profits down in five of the last six quarters.

Teslas share price has fallen roughly 30% from a peak last year, after Musks 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 Trumps tax and spending bill, calling it "utterly insane". He has focused his attacks on the bills contribution to Americas 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 BBCs 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 Teslas earnings on a quarterly basis," he said.

"With that slowing, dissipating, thats 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 Musks businesses to succeed.

"Everyone is stating that I will destroy Elons 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 companys 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 companys board, calling on it to determine if Musks 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".

Musks "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 firms problems by itself.

"It will help... but its got to be more than just another car," he said. "The markets 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.

"Thats almost 20 years ago now," he said. "Were still sitting at the tip of our chairs waiting for the cars that hes promising."