Tesla’s profits fell sharply in the first three months of the year after it cut prices for its electric vehicles, the company said on Wednesday.
The carmaker, led by Elon Musk, said it had earned $2.5 billion in the first quarter, 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 cars in the United States last year than all of its competitors combined. But its market share fell as traditional automakers such as General Motors, Ford Motor and Volkswagen began selling electric cars that often undercut Tesla’s price. In China, Tesla has been overtaken by BYD. Tesla’s product line hasn’t changed much, which can be a big disadvantage as rivals lure buyers with attractive new models.
In an attempt to maintain its grip on the market, Tesla has made a series of price cuts this year on all four of its models. Because it has much wider profit margins than other automakers, the company is, in theory, in a strong position in a price war.
But the price cuts appear to be quickly eating into those margins. In the first quarter, gross margin, which measures the profitability of Tesla’s auto business, excluding revenue from the sale of clean energy credits, was 19 percent, down from nearly 27 percent for all of 2022 .
The average selling price of Tesla vehicles in the first quarter of this year was nearly $46,000, down from $51,400 in the final quarter of 2022. But despite this 11 percent decline, deliveries of Tesla vehicles were only 4 percent higher.
In its financial filing on Wednesday, Tesla said its margins had declined at a “manageable pace” and that it expected “continued cost reduction in our vehicles.”
Tesla’s adjusted earnings per share of 85 cents were in line with Wall Street analysts’ expectations, and its shares fell 4 percent in extended trading on Wednesday. Tesla shares are up nearly 50 percent this year, but are still down 56 percent from their 2021 high.
Competition will intensify this year as traditional automakers expand their electric lineups. GM plans to start selling an electric version of its Equinox sport utility vehicle for about $30,000, as well as electric versions of the Silverado pickup truck and Blazer SUV.
Investors have been waiting for Tesla to respond with new vehicles. The company has promised to start selling the Cybertruck pickup truck this year, although it won’t be available in large quantities until 2024. There is also speculation that Tesla will introduce a car priced below the Model 3 sedan, which starts in about $40,000 before Govt. incentives
The company’s strategy of cutting prices to bolster 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 hit by rising interest rates, which make car payments more expensive for buyers. But Tesla has also been boosted by changes to the tax breaks that electric cars receive in the United States.
Because it already makes batteries in the United States, Tesla had an easier time qualifying the new rules that took effect Tuesday and determining which vehicles qualify for a $7,500 tax credit. To be eligible, batteries must be made from lithium and other minerals mined or processed by a US trading ally, and 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 electricity producers and distributors to store solar and wind power. Mr. Musk said this month that Tesla would build a factory in Shanghai with the goal of assembling 10,000 of the giant batteries annually.
