Price cuts cause Tesla 1Q income, profit margins to fall
Tesla's first-quarter profit was cut into by price reductions across the model lineup.
DETROIT (AP). Price cuts across the Tesla model line-up have caused its first-quarter earnings to drop by 24% compared to a year earlier.
Austin, Texas-based electric car and solar panels company announced Wednesday that it had made $2.51 Billion from January to March. This is down from $3.32 Billion a year earlier. The company's revenue rose by 24%, to $23.33 Billion. However, the operating profit margin decreased.
FactSet reports that Tesla's adjusted earnings per share for the first quarter was 85 cents, which is in line with analyst expectations. Analysts expected that profits would fall due to the price reductions.
Tesla reduced the prices of many of its models in the U.S. early in the quarter, and then again in March. In an attempt to increase demand, the company cut prices in America twice more in April. This included overnight on Wednesday. The company also lowered prices in Europe.
Tesla's net income dropped despite its sales increasing 36% in the last quarter to 422 875 cars worldwide, a record. This is largely due to price cuts that have caused the average vehicle sale price to drop by just over $5,000 since the first quarter 2022. Analysts estimated the average Tesla sold at $46,850 in the last quarter. This is down from $52,100 one year ago.
The company produced almost 18,000 vehicles more than it sold in the third quarter, which indicates a softening of demand.
Tesla's operating profit margin dropped from 19.2% during the first quarter last year to just 11.4% in this quarter.
Tesla stated in its earnings report that it aims to leverage its position of cost leader while other automakers attempt to manage electric vehicle costs.
The company stated that despite the fact that it had implemented price cuts on a number of vehicle models in different regions during the first quarter, its operating margins were still at a manageable level.
The company expects to lower costs for its vehicles through improved production efficiency in its new factories as well as reduced shipping costs.
Analysts were watching to see if the price reductions would impact Tesla's profit margins and income for the quarter, given the rising interest rates and inflation. Edmunds reports that the average loan for a new car in the U.S. now stands at 7%.
Tesla's declining profit margin does not bode well for the second-quarter's net income, since Tesla has already cut U.S. Prices twice in April.
Tesla did not provide any numbers, but said that its Model Y small crossover was the best-selling non-pickup truck in the U.S. for the quarter. Tesla doesn't usually break down sales by region.
Tesla shares, which had fallen 2% on Wednesday during trading, fell another 4% after earnings were announced.
Tesla slashed $3,000 from the U.S. beginning prices of all Model Y versions overnight on Wednesday. These cuts lowered the Dual Motor model's price to $46,990. The Long Range model was reduced to $49,990. And the Y Performance model dropped to $53,990. The Model Y was eligible for the U.S. Tax Credit because SUVs have a price limit of $80,000.
Tesla's cheapest vehicle, the Model 3 Rear Wheel Drive was reduced to $39 990. The Model 3 Rear Wheel Drive is eligible for the $7.500 tax credit, as the maximum price for cars is $55,000. Model 3 Performance remained at $52,990.
Tax credits are not available for Tesla's larger models S and X. Prices remained unchanged for both on Wednesday.