Global Courant 2023-04-20 08:15:37
Tesla has reported a decline in first-quarter earnings as price cuts at Elon Musk’s electric vehicle company boosted demand but eroded profit margins.
Earnings came in at $2.5 billion, down 24 percent from the same period last year on sales of $23.3 billion, up 24 percent.
Equities fell on results, which were in line with Wall Street’s earnings-per-share expectations, but showed a lower-than-expected profit margin.
Facing more EV competition from other automakers, Tesla has made a series of price cuts in 2023, most recently in the last 24 hours on some models in the United States.
The company said on Wednesday that its profit margins had been trimmed to “a manageable rate” as it pointed to a “unique opportunity for Tesla” while announcing more price cuts.
Tesla has argued that its lead in the EV market makes it “a cost leader” as rivals ramp up.
In a conference call with analysts, Musk described the price cuts as related to macroeconomic factors, saying the aim was to sell more cars, even at lower profit margins.
Musk pointed to the Federal Reserve’s series of rate hikes as de facto price hikes, adding that concerns about a recession and job losses mean “people will generally put off making a big purchase like a new car.”
But as a result of the price cuts, Tesla’s operating margin fell from 16 percent in the previous quarter to 11.4 percent.
Musk and other Tesla executives were asked repeatedly during the conference call about their outlook for profit margins. But they avoided setting a target, saying it partly depends on factors beyond their control, such as the price of key commodities.
Investors optimistic about Tesla’s strategy see the price cuts as a way to increase its market share at a time when rivals are also ramping up production amid cost pressures.
But skeptics have said the pricing strategy raises questions about Tesla’s long-term profitability, undermines the company’s supposed exceptionalism and suggests it should be valued like other Wall Street automakers.
Tesla CEO Elon Musk says he wants to sell more cars even if it means lower profit margins (File: Aly Song/Reuters)
Tesla’s price cuts have put the company on the edge between preserving brand prestige while trying to grow volume, said Jessica Caldwell, an analyst at Edmunds.
“Buyers have previously expressed attraction to Tesla because they felt connected to Elon Musk’s larger-than-life persona and mission and wanted to be associated with an edgy and anti-establishment brand,” Caldwell said.
“As Tesla continues to increase volume, it will be held to even more of the standards expected of the mainstream car company it has become, as opposed to the luxury, niche brand it used to be.”
In its press release, Tesla said newer plants in Texas and Germany are starting up. It also said factory tools were on track for the Tesla “Cybertruck”, an unorthodox model that has generated much fanfare.
Chief Financial Officer Zach Kirkhorn said there was an improvement in logistics costs and some commodities such as lithium. He predicted that overall raw material costs would moderate in the second half of 2023.
Currently listed as the world’s second richest person behind LVMH Chief Executive Bernard Arnault, Musk has increasingly spread his endeavors beyond the auto sector.
In addition to leading both Tesla and Twitter, Musk recently filed papers to establish the X.AI artificial intelligence company in the US state of Nevada, according to business documents.
Musk is also the founder of SpaceX, which has scheduled for Thursday the first test flight of Starship, a venture “designed to send astronauts to the moon, Mars and beyond,” according to its website.
As Musk’s profile has risen, he has become a much more polarizing figure in American society.
The share of Americans who rate Musk favorably has risen to 42 percent, compared to 34 percent three years ago, according to YouGov survey data. But the share of negative opinions has also increased from 18 percent to 33 percent, according to the data.
Shares plummeted 5.8 percent to $170.10 in after-hours trading.
