Tesla has seen its profits fall sharply in the first three months of the year after cutting the price of its electric vehicles, the company said Wednesday.
The automaker, led by Elon Musk, said it made $2.5 billion in the first quarter. This is down from his $3.7 billion in the last three months of last year and his $3.3 billion in the first quarter of 2022.
Tesla sold more electric cars in the US last year than all of its competitors combined. However, its market share declined as traditional automakers such as General Motors, Ford Motor and Volkswagen began selling electric vehicles, often driving down Tesla’s prices. In China, Tesla has been overtaken by his BYD. Tesla’s product line hasn’t changed much, but this could be a big disadvantage as rivals lure buyers with attractive new models.
To maintain its market position, Tesla has made a series of price cuts across four models this year. With profit margins that are much wider than those of other automakers, the company is theoretically in a strong position to compete on price.
But price cuts seem to be eating up those margins fast. Gross margin, which measures the profitability of Tesla’s auto business in the first quarter (excluding revenue from the sale of clean energy credits), was 19%, down from his nearly 27% for the whole of 2022.
The average selling price of a Tesla car in the first quarter of this year has fallen from $51,400 in the fourth quarter of 2022 to around $46,000. But despite that 11% drop, Tesla’s vehicle sales only increased his 4%.
In a financial presentation on Wednesday, Tesla said it expects margins to fall at a “manageable rate” and “continued cost reductions for our fleet.”
Tesla’s adjusted earnings of 85 cents per share were in line with Wall Street analyst expectations, with the stock plunging 4% in extended trading Wednesday. Tesla shares are up nearly 50% this year, but are still down 56% from their 2021 high.
Competition will intensify this year as traditional automakers expand their electric product lineups. GM will start selling electric versions of its Equinox sport utility vehicle for around $30,000, as will electric versions of its Silverado pickup truck and Blazer SUV.
Investors have been waiting for Tesla to respond with a new car. The company has promised to start selling the Cybertruck pickup this year, but it won’t be available in bulk until 2024. There is also speculation that Tesla will announce a car priced below the Model 3 sedan. incentive.
The company’s strategy of lowering prices to boost demand also risks angering Tesla owners by lowering the resale value of Tesla vehicles. Prices for used Tesla cars have plummeted in recent months.
Tesla’s sales, like all automakers, have been hit by rising interest rates, making car payments more expensive for buyers. But Tesla is also being helped by changes to the tax credit electric vehicles receive in the US.
Tesla already makes batteries in the U.S., making it easier to qualify for new rules that went into effect Tuesday to determine which vehicles qualify for the $7,500 tax credit. must be manufactured with lithium and other minerals mined or processed by U.S. trade allies and use battery components manufactured in the U.S., Canada, or Mexico.
Tesla also sells solar panels, batteries for home power storage, and large batteries that power producers and distributors use to store solar and wind power. Musk said earlier this month that Tesla aims to build a factory in Shanghai to assemble 10,000 giant batteries each year.
