Tesla profits, gross margin fall in Q1

Tesla Inc. missed market estimates for first-quarter total gross margin on Wednesday, throttled by a series of aggressive price cuts meant to spur demand in a sagging economy and fend off rising competition.

The EV maker's net income during the latest period dropped 24 percent to $2.51 billion. 

Tesla reported total gross margin of 19.3 percent, compared with expectations of 22.4 percent, according to analysts polled by Refinitiv.

Excluding items, Tesla reported a profit of 85 cents, in line with estimates.

Tesla said profitability was also weighed down by higher raw material, commodity, logistics and warranty costs as well as outlays to ramp up ouput of 4680 battery cells, while it faced margin headwinds from the underutilization of new factories.

Deliveries of higher-priced Model S and Model X vehicles also slumped from the previous quarter, it said.

The electric-vehicle maker lowered sticker prices four times in the United States between January and March, sacrificing industry-leading margins to maintain dominance in the U.S. and catch up with rivals in China — its second-largest market.

But a murky economic outlook meant that Tesla CEO Elon 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 percent from the fourth quarter.

The company reported first-quarter revenue jumped 24 percent to $23.33 billion, just below a consensus estimate of $23.21 billion, according to 14 analysts polled by Refinitiv.

Tesla CFO Zachary Kirkhorn promised in January that Tesla would not go below margins of 20 percent and an average selling price of $47,000 across all models.

Tesla said its operating margin was 11.4 percent in the three-month period, down from 16 percent last quarter and 19.2 percent a year earlier. The carmaker downplayed concern about recent price cuts, saying its operating margins fell “at a manageable rate.”

The company has slashed prices several times in the United States, China and other markets since late last year, as Musk said Tesla could sacrifice its industry-leading margins to drive volume growth during a recession.

Analysts say, however, that Tesla may need to cut prices further, pressured by an ongoing price war, especially in China, and to prop up demand for its aging linup of models even as new factories in Berlin and Texas churn out EVs.

In the United States, where federal subsidies have recently boosted sales only modestly, Tesla has cut car prices six times so far this year, which has dragged on automotive gross margins. It has also expanded price cuts in Singapore, Israel and Europe.

"We also suspect Tesla's decision to consistently cut prices will prove a headache to competitors," Canaccord Genuity analyst George Gianarikas said in a note to investors. "While Tesla's industry leading margins will likely be sacrificed in the near term (as articulated on the company's fourth-quarter 2022 earnings call), many EV competitors are struggling to turn a profit."

Shares of the Austin, Texas-based automaker fell nearly 4 percent in trading after the bell.

Tesla on Wednesday reiterated that it expects to achieve deliveries of around 1.8 million vehicles this year.

The EV maker has previously said that logistics issues have caused it to deliver far fewer EVs than it makes. In the first quarter, it delivered about 18,000 fewer cars than it made.