Electric car giant Tesla missed market estimates on Wednesday for gross margins in the first quarter, undone by a series of aggressive price cuts meant to spur demand in a sagging economy and fend off rising competition.
Elon Musk-led Tesla reported total gross margin of 19.3 per cent, compared with expectations of 22.4 per cent, according to analysts polled by Refinitiv.
The company has lowered prices four times in the United States between January and March, sacrificing its industry-leading margin to maintain its dominance in the US and catch up with rival BYD in China - its second-largest market.
But a murky economic outlook meant that Mr Musk’s plan to ride out a recession with price cuts and lower production costs was not enough to make up for strained consumer spending on big-ticket items. Tesla deliveries in the first quarter rose 4.3 per cent from the fourth quarter.
In figures released after US markets closed, the company reported first-quarter revenue of $23.33 billion (€21.3 billion), compared with consensus estimate of $23.21 billion, according to 22 analysts polled by Refinitiv.
Tesla shares had fallen ahead of the results on the latest cut in prices in the United States - the second time this month - further demonstrating Mr Musk’s willingness to sacrifice profitability for demand.
The company marked down each version of its Model Y sport utility vehicle by $3,000. It also cut the cost of the base Model 3 by 4.7 per cent to less than $40,000 for the first time in years.
The company is in the rare position among EV makers of having profit margins to work with, as incumbents including Ford and newer entrants like Rivian Automotive and Lucid Group struggle to make money at lower volumes.
Mr Musk has pushed back against media coverage of the cuts. “We’re not ‘starting a price war,’” the chief executive tweeted on April 15th. “We’re just lowering prices to enable affordability at scale.”
Following Tesla’s first line-up-wide price cuts in January, Mr Musk said weeks later that orders were running at almost twice the rate of production. But the carmaker was unable to sustain that dynamic.
Despite a second set of price cuts for the Model S and X in early March, Tesla delivered just 10,695 of those vehicles in the quarter, the lowest since the third quarter of 2021.
A concern for investors is the extent to which legacy manufacturers are ramping up EV production and luring consumers from Musk’s limited portfolio of models, Bloomberg Intelligence analysts wrote in their preview note. – Reuters / Bloomberg
