Tesla (NASDAQ:TSLA) shares are trading sharply lower Thursday after the electric vehicle (EV) maker reported a disappointing set of Q1 results. Thursday’s drop comes on the back of a 2% fall in Wednesday trading.
Tesla posted adjusted earnings per share (EPS) of 85 cents in the first quarter, in line with the analysts’ expectations, according to Refinitiv. The electric vehicle (EV) maker reported revenue of $23.33 billion, up 24% YoY, and above the consensus estimates of $23.21 billion.
Net income stood at $2.51 billion at the end of the quarter, down 24% YoY, while GAAP earnings fell 23% from the year-ago period to 73 cents per share.
Tesla disclosed a record inventory in Q1 of $14.38 billion, compared to $6.69 billion a year ago. The company said it burned $154 million in cash during the latest quarter.
The EV maker also said it expects to start production of its Cybertruck later this year, though it remains unclear if the initial output would begin this summer. CEO Elon Musk told investors on Wednesday that the Cybertruck delivery event is likely to be held in the third quarter.
The Elon Musk-owned giant also continues to hold it’s nearly 12,000 Bitcoin, having neither sold nor purchased the cryptocurrency thus far in 2023.
All Focus Was on Margins… And They Disappoint
The world’s biggest EV company generated $19.96 billion in automotive revenue, its key segment, marking a YoY increase of 18%. The company’s revenue from automotive regulatory credits in the first quarter stood at $521 million, notably down from $679 in the same quarter last year.
Tesla said the slump in earnings comes amid pressured margins, a decline in revenue, and “underutilization of new factories,” as well as mounting raw material, commodity, logistics, and warranty expenses.
The EV maker reported its lowest quarterly gross margin in two years, short of consensus estimates, in the wake of a series of price reductions in the US and China to drive demand and ward off intensifying competition.
"It's better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy," Tesla co-founder and Musk told analysts on a conference call.
The EV business posted a total gross margin of 19.3%, missing the consensus projection of 22.4%. The company did not disclose its automotive gross margin, a metric closely observed by investors. According to Musk, the weak economy makes it challenging to offer a margin outlook.
However, the company said in a statement it still believed its operating margin would remain the highest among major car manufacturers.
During the call, Musk also cited uncertainty around the macroeconomic environment as a potential factor that could weigh on consumers’ car shopping plans. He said he expected 12 months of rough weather in the economy amid the Federal Reserve’s monetary policy tightening.
“Every time that the Fed raises interest rates, that’s the equivalent to an increase in the price of a car,” said Musk, adding that consumers are likely to delay “big new capital purchases like a new car” whenever there’s economic uncertainty.
In such an environment, Tesla’s focus on driving volumes and growing its fleet “is the right choice here, versus a lower volume and higher margin,” though he still expects the company to become capable of turning robust profits through autonomy.
Musk did not reaffirm his earlier remarks that he would have liked to reach 2 million car deliveries in 2023, though he stood by Tesla’s official delivery objective of 1.8 million vehicles.
Several Rounds of Price Cuts… And More to Come
Tesla’s earnings report came a day after the EV maker slashed U.S. car prices for the sixth time this year amid worries about its profit margins. This time, the company reduced the prices of its Model Y “long-range” and “performance” vehicles by $3,000 each, while the cost of its Model 3 “rear-wheel drive” car got trimmed by $2,000 to $39,990.
The move comes as the U.S., Tesla’s biggest market, prepares to impose more rigorous standards that would restrict EV tax credits. The latest cuts mean that Tesla has now slashed U.S. prices of its base Model 3 and base Model Y by 11% and 20% this year, respectively.
“We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale,” Tesla said in its Q1 earnings report.
In recent months, the carmaker has also reduced prices in other markets including Europe, Japan, Israel, Singapore, South Korea, Australia, and China.
"We continue to strongly believe that aggressive price cuts by Tesla was a smart 'rip the Band-Aid off moment' for Musk & Co. to defend its EV turf,” said Wedbush analyst Daniel Ives.
The analyst added the cuts “put an iron fence around" the company’s customers, though questions remain about when the price cuts would end and how would its profit margins look like when that happens.
Earlier this month, the carmaker lowered the prices of its entire U.S. EV lineup. Some vehicles, such as Tesla’s more expensive models including the S large sedan and Model X, saw their price reduced by as much as $5,000.
Analysts believe that the company may have to lower the prices even further amid an ongoing price war, particularly in China, its second-biggest market.
Summary
Tesla shares are trading about 9% lower on Thursday after the EV maker reported softer-than-expected revenue and margin figures for its first quarter. Moreover, the company said it is likely to cut prices again as it continues to operate in a tough macroeconomic environment.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.