Tesla sinks amid weak margins – is the bounce over?

Due partly to price reductions implemented throughout the year, Tesla’s first-quarter earnings report revealed the worst profit margins in over two years. On revenues of $23.33 billion, Tesla reported adjusted earnings of 85 cents per share, down 20.5% year over year but in line with the Street consensus projection.

Sharp decline in margins

After a series of price cuts in its largest worldwide markets, Tesla reported a significant drop in its adjusted automotive margins to 18.3% from 26.8% in the first quarter of 2022 and 22.2% in the fourth quarter of 2022.

In order to compete with established US automakers, Tesla has lowered the pricing of some of its Model Y and Model 3 vehicles by as much as six times this year alone.

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That scared investors, who sold automakers’ stocks throughout Europe and the United States out of concern that profits would be cut to preserve market dominance in a sluggish industry this year due to economic uncertainties.

While the company saw an increase in deliveries of 4% in the first quarter, the average selling price of its vehicles fell by 11%, from $51,400 in the previous quarter of 2022 to $46,000.

According to the company’s website, Tesla has also lowered the base price of its Model 3 car by around 13.5% in China. As it faced rising competition from domestic Chinese automakers in the world’s largest auto market, Tesla reduced the price of its Model Y by around 10% to 259,900 yuan, or about $37,660.

Deliveries stay strong

The business reported that during the first three months of 2023, it manufactured and delivered over 440,000 automobiles. In addition, the firm shipped over 412,000 Model 3/Y vehicles and 10,695 Model S/X vehicles.

Tesla has set a goal of 1.8 million deliveries for all of 2023, and CEO Elon Musk has said the number may be reached “if it’s a smooth year… without some big supply chain interruption or massive problem.” However, current production is below the rate required to accomplish either goal.

Despite Musk’s silence on the topic during last night’s conference call, Tesla remains committed to its previous projection of 1.8 million deliveries.

In light of that, Musk explained that the company must prioritize volume above profit to build a sustainable income from the sale of autonomous vehicles over several years.

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“We’re taking a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk told investors on a conference call late Wednesday. “However, we expect our vehicles over time will be able to generate significant profit through autonomy.”

According to the report, construction of the Cybertruck, which has been postponed for quite some time, will begin later this year at the company’s Gigafactory in Texas. Mr. Musk predicted that Cybertruck shipments would begin in the third quarter of 2023.

Today’s decline pushed the price to the key horizontal support of $165. If the stock price closes below that level, the recent bounce might be over, likely leading to a drop toward $145 to close the bullish gap from January.