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Tesla is a victim of a price war it started
Tesla helped kick off an EV price war. Now, those lower prices are hitting the company’s sales and profits.
Tesla, which has cut prices on its electric vehicles four times in the quarter and twice so far this month, earned $2.9 billion excluding special items, down 22% from a year ago. Profits fell even more compared to the third and fourth quarters of last year.
The lower prices caused revenue to fall $1.3 billion compared to the fourth quarter despite record deliveries, leading to tighter profit margins.
Tesla reported a gross profit margin of 19.3%. It was the lowest profit margin reported by Tesla since the end of 2020, when its operations were being significantly impacted by the early months of the pandemic.
Its more closely watched automotive profit margin, excluding the bump it gets from selling emission credits to other automakers, fell to just under 19%. Both profit margins disappointed Wall Street analysts who were looking for margins to stay comfortably above 20%.
While those margins were well above the profit margin of traditional automakers, it’s down nearly 10 percentage points from what it posted a year earlier and was lower than Wall Street forecasts.
While the company has only a fraction of the sales of established global automakers, it is by far the most valuable automaker by market cap. It’s profit margins, and strong growth targets, are key reasons for those lofty valuations.
Tesla is facing growing competition on EVs from established automakers. Some, including Ford, have followed by cutting the price of the Mustang Mach-E, one of its key EVs. Others, such as General Motors, have announced plans for EV models that will be less expensive than the cheapest Tesla model.
Shares of Tesla, which have rebounded this year after losing 65% of their value in 2022, were down about 4% in after-hours trading following the results.