Electric vehicle giant Tesla recorded its lowest quarterly gross margin in two years in the first quarter of 2023. Moreover, the automaker fell short of Wall Street’s expectations primarily due to the major price cuts it imposed in significant markets, including the US and China.
Nonetheless, CEO Elon Musk declared during the conference call that Tesla has decided to expand its volumes rather than achieve a higher margin. He further stated that Tesla’s orders surpassed production despite economic uncertainty.
“We’ve taken the view that pushing for higher volumes and a larger fleet is the right choice here, versus a lower volume and higher margin. However, we expect our vehicles over time will be able to generate significant profit through autonomy.”
CEO Elon Musk
In addition, CEO Musk claimed that Tesla’s margin is still among the most competitive in the market despite the significant price cuts on its S3XY lineup in 2023.
“While we reduced prices considerably in early Q1, it’s worth noting that our operating margin remains among the best in the industry.”
CEO Elon Musk
The Tesla boss also forecasted a global production rate of 1.8 million to 2 million units in 2023. In comparison, Tesla’s global production hit approximately 1.4 million units last year.
Furthermore, CEO Musk mentioned his expectations for the near-term development of autonomy for Tesla’s current lineup of consumer EVs. As of now, its “Full Self Driving” software costs $15,000, but it still requires a human driver.
Tesla missed market expectations
Wall Street forecasted Tesla to report a $23.617 billion revenue and $0.85 per share earnings for the first quarter of 2023.
Tesla hit the $0.85 per share (non-GAAP) mark on earnings. However, only reported a $23.3 billion revenue, short of approximately $300 million from Wall Street’s forecast.
As mentioned, Tesla fell short of market estimates in total gross margin for Q1 2023.
The EV giant also reported a 19% gross margin, 3% short of the market’s expectations of 22.4%, per 14 analysts polled by Refinitiv. Meanwhile, Tesla’s Q1 2023 net income fell 24% to $2.5 billion.
As for Tesla’s delivery performance, it delivered 422,875 EVs globally in Q1 2023, up 4.3% from the previous quarter. In essence, price cuts appear critical for Tesla to keep its momentum amid growing competition and interest rates. However, analysts say these price cuts may adversely affect Tesla over time.
“Ongoing price cuts and the latest federal tax credit rules are making Tesla’s intended mass-market vehicles, Model 3 and Model Y, far more attainable.
In the long term, however, Tesla is walking a razor’s edge between maintaining its brand prestige while simultaneously attempting to grow volume.”
Jessica Caldwell, Edmunds’ executive director of insights
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Nonetheless, Tesla hinted that there would still be more price cuts to come for its EV offerings.
“Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity and service.
We expect that our product pricing will continue to evolve, upwards or downwards, depending on a number of factors.”
Tesla
