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Tesla reported earnings after the market close on Wednesday. The electric-vehicle maker’s decision to slash prices impacted its profits.
Saul Loeb/AFP via Getty Images
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Price wars have consequences, even for Tesla, the world’s most valuable car company.
Tesla‘s (ticker: TSLA) first-quarter earnings, reported Wednesday evening, met expectations, but its first-quarter automotive gross profit margins were shocking—shockingly bad. No matter how investors slice and dice the numbers, results will leave them with questions about demand and Tesla’s pricing strategy.
Automotive gross profit margins, excluding regulatory credits, came in below 16%, down from about 24% in the fourth quarter of 2022. Wall Street was looking for about 21%. It’s a 5 percentage point miss.
A proxy for the average price per vehicle sold, calculated by taking automotive sales and dividing it by deliveries, was about $44,600, down almost $10,000 from about $54,400 in the first quarter of 2022. And gross profit margin per vehicle sold was about $6,800. A year ago, that number was about $15,700.
It isn’t a good report. Tesla stock is down 3.8% in after-hours trading Wednesday, and dropped 2% during Wednesday’s regular hours. The Nasdaq Composite was flat.
The rest of the quarter looked OK. Tesla reported a profit of 85 cents a share, meeting expectations, on sales of $23.33 billion, just a touch below forecasts for $23.67 billion.
Even Tesla’s “other business” did just fine, generating $1.1 billion in gross profit, a record. Other businesses include automotive leasing, solar roofs, and battery storage. In Q1, Tesla deployed 3.9 gigawatt hours of battery storage in the quarter, also a record.
Total operating profit reported came in at $2.7 billion, below Wall Street’s expectations for $3 billion. Operating profit margins came in at 11.4%, down from 19.2% in the year-ago quarter.
Operating profit margins of 11% make Tesla look like, well, a traditional auto maker.
Toyota Motor
‘s (TM) fourth-quarter operating profit margin came in at almost 10%.
“In the current macroeconomic environment, we see this year as a unique opportunity for Tesla,” reads the quarterly report. “As many carmakers are working through challenges with the unit economics of their EV programs, we aim to leverage our position as a cost leader.”
Tesla is trying to step on the throat of the competition and is willing to use vehicle price to do it. The problem for Tesla is that General Motors (GM) and Ford Motor (F) are still making a lot of money in their traditional car business. Losses in EVs don’t really register yet. Tesla might be leveraging its cost position early.
More on Tesla’s pricing strategy will almost certainly come on its earnings conference call, which is slated to start at 5:30 p.m. Eastern time.
CFO Zachary Kirkhorn, on the company’s fourth-quarter call in January, said that Tesla could hit automotive gross profit margins of 20% for the full year. Investors will want to know if that is still the goal.
Investors will also want to know if demand remains strong. Tesla news release also included the line it remains “on track with our growth investments.” That might be an endorsement of 1.8 million vehicle deliveries expected for 2023, but investors will have to wait and see what comes from the call.
One silver lining for investors is costs are coming down. The average cost to produce a car came in at about $37,800, down from a Q2 2022 peak of about $42,700. The type of vehicle ordered impacts both price and cost calculations so investors should use the cost calculation as only a rough guide.
Another silver lining is the nonautomotive business. Gross profit margins were north of 20%, up about 14 percentage points compared with the fourth quarter of 2022.
Bulls will take some solace in that, but Tesla, for now, is still mostly a car company.
Write to Al Root at allen.root@dowjones.com and Callum Keown at callum.keown@barrons.com
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