Tesla’s profits fell sharply in the first quarter due to falling prices

Tesla’s profits fell sharply in the first three months of the year after cutting prices for its electric vehicles, the company said Wednesday.

The automaker, led by Elon Musk, said it made $2.5 billion in the first quarter, compared with $3.7 billion in the last three months of last year and $3.3 billion in the first. quarter 2022.

Tesla sold more electric cars in the United States last year than all of its competitors combined. But its market share fell as traditional automakers like General Motors, Ford Motor and Volkswagen began selling electric cars that were often priced lower than Tesla’s. In China, Tesla has been overtaken by BYD. Tesla’s product lineup hasn’t changed much, which can be a big downside as rivals entice buyers with enticing new models.

In an attempt to maintain its grip on the market, Tesla has made a series of price cuts on its four models this year. Because it has much wider profit margins than other automakers, the company is in theory in a strong position in a price war.

But price cuts seem to be eating away at those margins fast. In the first quarter, gross margin, which measures the profitability of Tesla’s automotive business, excluding revenue from the sale of clean energy credits, was 19%, compared with nearly 27% for all of 2022.

Tesla’s average vehicle selling price in the first quarter of this year was nearly $46,000, down from $51,400 in the last quarter of 2022. But despite this 11% drop, Tesla’s vehicle deliveries were not only 4% higher.

During a conference call to discuss the company’s quarterly results, Musk said Tesla’s profit margin remained among the highest in the industry. “We feel that pushing for higher volumes and a larger fleet is the right choice here,” he said, “versus lower volume and higher margin.”

On the call, Zachary Kirkhorn, Tesla’s chief financial officer, was asked to provide a 2023 forecast of gross margin for Tesla’s automotive business, but said it would be difficult due to economic uncertainty. .

Tesla said it expects to sell 1.8 million cars in 2023, up from 1.3 million last year.

The company’s adjusted earnings per share of 85 cents were in line with Wall Street analysts’ expectations, and its stock fell about 4% in extended trading on Wednesday. Tesla shares are up nearly 50% this year but are still down 56% from their 2021 peak. The stock has been under pressure over the past year, in part because Mr. Musk sold billions of dollars worth of Tesla stock to help fund its acquisition of Twitter.

Competition will intensify this year as traditional automakers expand their electric ranges. Volkswagen’s ID.4 sport utility vehicle starts at around $39,000, less than the $47,000 starting price for Tesla’s Model Y SUV

GM plans to start selling an electric version of its Equinox SUV for around $30,000, along with electric versions of the Silverado pickup truck and Blazer SUV.

Investors were waiting for Tesla to respond with new vehicles. The company has promised to start selling the Cybertruck pickup this year, although it won’t be available in large numbers until 2024. On Wednesday, Mr Musk said the company expected a “delivery event”. for the Cybertruck in the third quarter of this year.

“It really is a very radical product,” he said. “It’s not made like other cars are made.”

There is also speculation that Tesla will unveil a car at a lower price than the Model 3 sedan, which starts at $39,990 before government incentives.

The company’s strategy of cutting prices to support demand also risks offending Tesla owners by reducing the resale value of their cars. Used Tesla prices have fallen in recent months.

Tesla’s sales, like those of all automakers, have been hurt by rising interest rates, which make car payments more expensive for buyers. But Tesla has also been buoyed by changes to the tax credits enjoyed by electric cars in the United States.

Because it already manufactures batteries in the United States, Tesla has had an easier time qualifying for the new rules that took effect Tuesday and determining which vehicles are eligible for a $7,500 tax credit. To be eligible, batteries must be manufactured with lithium and other minerals mined or processed by a U.S. trading ally, and with battery components manufactured in the United States, Canada, or Mexico.

Tesla also sells solar panels, batteries for home energy storage, and large batteries used by power producers and distributors to store solar and wind energy. Mr Musk said this month that Tesla would build a factory in Shanghai with the aim of assembling 10,000 giant batteries a year.