Tesla will sacrifice profit for higher volume, Musk says

Tesla is willing to sacrifice profit for higher volume in the short term, said CEO Elon Musk, reaffirming the automaker's commitment to price cuts after it missed first-quarter expectations for total gross margin.

"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," Musk said Wednesday on the company's quarterly earnings call. "However, we expect our vehicles over time will be able to generate significant profit through autonomy."

Moreover, Musk said, Tesla's margins remain among the healthiest in the industry, even after multiple rounds of price cuts this year for its Model 3 and Model S sedans and Model Y and Model X crossovers.

He added that global production should reach between 1.8 million and 2 million vehicles this year. In 2022, Tesla reported global production of about 1.4 million.

Musk also said on the call that he expected Tesla's software and hardware combination to achieve autonomy on its current fleet of consumer vehicles in the near future. Tesla sells driver-assistance software that it calls Full Self-Driving, for $15,000, even though Tesla vehicles cannot drive themselves and require a human driver to be in control at all times.

Tesla missed market estimates for first-quarter total gross margin after cutting prices in the U.S. and globally.

The electric vehicle maker reported total gross margin of 19 percent, compared with an expectation of 22 percent from analysts polled by Refinitiv, Reuters reported. Net income during the latest period dropped 24 percent to $2.5 billion.

Tesla reported global deliveries of 422,875 in the first quarter, a 4.3 percent increase compared with the previous quarter. That small growth suggests price cuts were necessary to maintain momentum amid rising EV competition and higher interest rates.

The EV maker likely sold 161,630 vehicles in the U.S. in the January-March period, according to an estimate from Cox Automotive, for a 25 percent increase compared with a year earlier. Tesla doesn't break out U.S. sales.

Tesla is also eligible for new EV tax incentives of up to $7,500. Its bestselling Model Y that was priced just over $65,000 last year without access to tax incentives is now just over $50,000 with the incentive available.

Analysts say the price cuts are good for juicing volume but could hurt the brand 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," said Jessica Caldwell, executive director of insights at Edmunds. "In the long term, however, Tesla is walking a razor's edge between maintaining its brand prestige while simultaneously attempting to grow volume."

Musk also said on the earnings call that Tesla is preparing to launch its Cybertruck this year and will probably have a delivery event in the third quarter. The automaker's year-old Texas factory is tooling up to make the pickup.

"There's a tremendous amount of demand for the product, obviously," Musk said. "It is, in my view, a fantastic product, a hall of famer. But as with all new products, it takes time to get the manufacturing line going."

Tesla also said it is making headway on ramping up production for an in-house battery cell, called the 4680 for its dimensions in millimeters.

Tesla said profitability was weighed down by higher costs for raw materials, logistics and underutilization of new factories.

The company reported first-quarter revenue jumped 24 percent to $23.3 billion, just above a consensus estimate of $23.2 billion, Reuters said.