Elon Musk recently stated inflation is worse than reported and likely to last through 2022
Inflation rose again in March, but Tesla CEO Elon Musk said he thinks inflation could be worse than reported and that it will likely not dissipate any time soon. Elon Musk believes the US government has understated the “true magnitude” of inflation. Inflation soared 8.5% in the year through March to a 41-year high, according to the Bureau of Labor Statistics official estimate.
According to reporting from a recent article in CNBC, in Tesla’s first-quarter earnings call, Musk, CEO of the carmaker, said: “I think the official numbers actually understate the true magnitude of inflation.”
He added that inflation “appears to be likely to continue for at least the remainder of this year.”
Musk was responding to an analyst’s question about a recent jump in Tesla’s prices, which went against the grain of the company’s aim to cut prices and make its vehicles more affordable.
Musk said inflation had made that difficult.
He said Tesla’s suppliers were under “severe cost pressure,” with some requesting up to 30% cost increases for parts from 2021 to the end of 2022. “There’s a lot of cost pressure there,” he said.
In response to another analyst’s question about hiking prices further, Musk said Tesla hopes it doesn’t have to.
“The current prices are for a vehicle delivered in the future, like six to 12 months from now, so this is our best guess,” he added.
Long-term contracts with suppliers were helping to keep Tesla’s costs down in the short term, Musk said. But he recognized that these contracts would eventually come to an end, which could mean potentially significant price rises.
Tesla beat Wall Street’s estimates for both revenue and earnings for the first quarter of 2022. The company reported that its revenue was up 81% year-over-year, while earnings per share more than doubled.
China’s lockdowns will make inflation and the supply chain nightmare even worse
According to recent reporting from Fortune, “china’s strict COVID-19 lockdowns will exacerbate global supply chain woes and add to inflation in the coming months,” experts say. President Xi Jinping’s zero-COVID policy is being tested as the country struggles to tame its worst virus outbreak yet.
Now, the economic effects are starting to show. Fuel demand in China is on track to drop 20% this month in the biggest decline since the first wave of COVID-19 lockdowns more than two years ago, sources told Bloomberg on Friday. And global supply chains are beginning to feel the crunch as well.
Even if strict lockdowns in Shanghai are lifted, U.S. ports will likely be slammed with a wave of pent-up cargo from newly reopened factories in China. That will lead to higher freight rates.
Another inflationary shock could be coming
Problems at ports mean rising costs for companies and increasing inflation for U.S. consumers, experts say. John Bree, the chief risk officer at Supply Wisdom, to Fortune “companies are beginning to panic. The downstream impact is coming, and it’ll be heavy.” He went on to add “the latest China lockdowns combined with the Russia-Ukraine war is too heavy a burden. The global chaos is going to further exacerbate disruption and take inflation to a new level.” Bank of America analysts led by Ethan Harris said in a note to clients that it’s yet “another adverse supply shock for the global economy” that will weaken growth and extend the period of high inflation.
Dylan Alperin, head of professional services at the intelligent sourcing automation solutions provider Keelvar, noted that transportation costs make up 7.7% of global GDP, which means delays at ports typically lead to rising inflation.
