April 29, 2023

Having sparked a pricing war, Tesla is now the victim

The EV price battle was sparked in part by Tesla. The company’s sales and earnings are currently being impacted by those decreased pricing.

Tesla made $2.9 billion, excluding exceptional items, a 22% decrease from the prior year despite lowering the price of its electric vehicles four times in the last quarter and twice so far this month. Compared to the third and fourth quarters of last year, profits decreased considerably more.

Despite record deliveries, the lower prices caused revenue to decline by $1.3 billion compared to the fourth quarter, which resulted in tighter profit margins.

The gross profit margin for Tesla was 19.3%. Since the end of 2020, when the early epidemic months had a substantial influence on company operations, Tesla has not recorded a lower profit margin.

Without the boost it receives from selling pollution credits to other manufacturers, its more closely scrutinized automotive profit margin dropped to just under 19%. Wall Street analysts expected margins to easily remain over 20%, therefore both profit margins surprised them.

Tesla officials refused to provide any direction when asked about the direction of its profit margins in the future.

Making a projection in this setting is challenging. Macro uncertainty is prevalent, according to CFO Zachary Kirkhorn. Additionally, headwinds and tailwinds exist.

He did mention that some expenses, such as those related to logistics and commodities, are decreasing.

Established manufacturers are posing a rising threat to Tesla in the EV market. Some companies, including Ford (F), followed suit and reduced the price of the Mustang Mach-E, one of its most important EVs. Others have made plans for EV versions that will be less expensive than the most affordable Tesla model, including General Motors.

Shares of Tesla (TSLA), which had recovered this year after losing 65% of their value in 2022, were down nearly 4%.

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