October 3, 2023

Tesla said on Wednesday that profit fell sharply in the first three months of the year after it lowered the price of its electric vehicles.

The automaker, led by Elon Musk, said first-quarter profit was $2.5 billion, down from $3.7 billion in the final three months of last year and $3.3 billion in the first quarter of 2022 .

Tesla sold more electric vehicles in the U.S. last year than all of its rivals combined. But its market share has slipped as traditional automakers such as General Motors, Ford and Volkswagen began selling electric vehicles that often undercut Tesla in price. In China, Tesla has been surpassed by BYD. Tesla’s product lineup hasn’t changed much, which can be a big disadvantage as rivals lure buyers with enticing new models.

To maintain its position in the market, Tesla has made a series of price cuts on four of its models this year. Because its profit margins are much higher than those of other automakers, the company is theoretically well-positioned in a price war.

But price cuts appear to be eating into those margins quickly. Gross margin, which measures the profitability of Tesla’s auto business, was 19% in the first quarter, down from nearly 27% for all of 2022.

The average selling price for a Tesla vehicle in the first quarter of this year was nearly $46,000, down from $51,400 in the final quarter of 2022. But despite an 11% drop, Tesla’s vehicle deliveries rose just 4%.

During a conference call to discuss the company’s quarterly results, Mr. Musk said Tesla’s profit margins remained among the highest in the industry. “We believe that driving higher volumes and a larger fleet is the right thing to do,” he said, “as opposed to lower volumes and higher margins.”

During the call, Tesla Chief Financial Officer Zachary Kirkhorn was asked to provide a 2023 gross margin forecast for Tesla’s auto business, but said doing so would be difficult due to economic uncertainty.

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

The company’s adjusted earnings of 85 cents a share met Wall Street analysts’ expectations, and its shares fell about 4% in after-hours trading on Wednesday. Shares of Tesla are up nearly 50% this year, but are still down 56% from the highs reached in 2021. The stock came under pressure last year, in part because Musk sold billions of dollars in Tesla stock to fund his Twitter acquisition.

Competition will intensify this year as traditional automakers expand their electrified lineups.The Volkswagen ID.4 is a sport utility vehicle that starts at about $39,000, less than Tesla’s Model Y SUV, which starts at $47,000

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

Investors have been waiting for Tesla to respond with new cars. The company has promised to start selling the Cybertruck pickup this year, though 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’s really a very radical product,” he said. “It’s not built the way other cars are made.”

There has also been speculation that Tesla will launch a car that costs less than the Model 3 sedan, starting at $39,990 before government incentives.

The company’s strategy of cutting prices to boost demand also risks offending Tesla owners by lowering the resale value of their cars. Prices for used Teslas have plummeted in recent months.

Like all automakers, Tesla’s sales have been hurt by rising interest rates, making them more expensive for car buyers. But Tesla has also been boosted by changes to the U.S. electric vehicle tax credit.

Because it already makes batteries in the United States, it will be easier for Tesla to comply with the new rules that go into effect Tuesday and determine which vehicles are eligible for the $7,500 tax credit. To qualify, batteries must be made from lithium and other minerals mined or processed by U.S. trade allies, and the battery components must be manufactured in the U.S., Canada or Mexico.

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

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