Tesla misses profit estimates as price cuts squeeze margins
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Electric vehicle maker Tesla has been slashing prices to protect its leading market position.
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OAKLAND, California – Tesla missed first-quarter profit estimates after a series of price cuts
Revenue rose 24 per cent to US$23.33 billion (S$31.1 billion) in the quarter, nearly in line with Bloomberg estimates of US$23.35 billion.
Profit excluding some items fell to 85 US cents a share, slightly below the 86 cent average of estimates compiled by Bloomberg, while free cash flow slumped to a two-year low of US$441 million. Analysts had expected free cash flow to reach US$3.24 billion in the quarter.
The electric vehicle (EV) maker has been slashing prices to protect its leading market position. Tesla said its operating margin was 11.4 per cent in the three-month period, down from 16 per cent in the last quarter and 19.2 per cent a year ago. Unusually, it did not announce its automotive profit margin, which analysts have been watching closely.
Investors are showing some nervousness about that aggressive pricing strategy. The company’s shares slid almost 5 per cent before paring slightly in late trading in New York after the results were announced. The stock had been up 47 per cent so far this year till Wednesday’s close.
“Tesla is going through a rough patch,” said Mr Gene Munster, managing partner at Deepwater Asset Management. “It is holding things together, but investors want to see some of these trends start to improve.”
Profit advantage
Tesla’s profitability sets it apart from other EV companies. The carmaker downplayed concern about its recent price cuts, saying its margins fell “at a manageable rate”. It said higher vehicle deliveries and raw material costs played a factor in reducing profits.
“Our operating margins remain among the best in the industry,” chief executive officer Elon Musk said in a call with analysts.
Tesla has also benefited from tax credits included in the Biden administration’s Inflation Reduction Act. The company reported regulatory credits of US$521 million in the first quarter.
Mr Musk has repeatedly said he does not mind sacrificing profits to boost demand, arguing that the high cost of Tesla cars is holding back potential customers.
The base price of the Model 3 has now dipped below US$40,000 for the first time in years, a roughly US$7,000 cut since the start of the year.
The CEO is leaning on the fact that Tesla can produce EVs at scale to build on an existing lead over competitors, which are rolling out slick new battery-powered vehicles.
Tesla is working with an older stable of models, having last introduced a new passenger car, the Model Y, in 2019.
Production of Tesla’s long-awaited Cybertruck electric pickup is on track to start later this year at its plant in Texas, with a “delivery event” expected in the third quarter. The company is also making progress on its next-generation vehicle platform, according to a shareholder letter.
The EV maker said output this year will meet previous guidance for average annual growth of 50 per cent over multiple years, and that it is on track to deliver about 1.8 million vehicles in 2023.
It produced 440,808 cars and delivered 422,875 vehicles in the quarter, resulting in excess inventory of about 18,000. Orders are now outpacing production, Mr Musk said during the call with analysts. BLOOMBERG
