2023-04-20 02:46:29
Tesla has cut prices several times in recent months to stimulate demand for its electric vehicles, a move that helps its sales continue to climb but also weighs on its profits.
For Elon Musk, the strategy is clear: it is better to produce more even if the margins are temporarily lower. “We want to continue to sell as many cars as possible despite the uncertain macroeconomic environment,” he said on Wednesday during a conference call after the publication of quarterly results.
The group relies heavily on the marketing of autonomous driving tools on which it has been working for several years, he recalled. “It is better to deliver a large number of cars with a lower margin and collect this margin later, as we perfect” these tools, explained the manager.
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In the first quarter, the company delivered 36% more than in the same period in 2022. Its revenue climbed 24%, to $23.3 billion. Its net profit at the same time plunged 24% to 2.5 billion.
A declining operating margin
To prevent sales from slowing too much due to the economic slowdown, the rise in interest rates which makes it more expensive to buy a car and the arrival of many models of electric vehicles, Tesla has in fact the choice, in recent months, to lower its prices, both in the United States and in China or Europe.
The group further lowered prices on Wednesday in the United States on its popular Model 3 and Model Y. Result: its operating margin, from 16.8% in 2022, plunged to 11.4%. However, it remains much higher than at Ford (4% in 2022 according to FactSet) or at General Motors (6.6%).
Tesla acknowledges that the price cuts have weighed on its margins but believes they remain at a “manageable rate”.
The price cuts “certainly contribute in the short term” to increasing sales, notes Jessica Caldwell of the firm Edmunds. “However, in the long term, Tesla is on the razor’s edge between maintaining its brand image and its efforts to increase sales volume,” she said in a note.
The company has also suffered from higher raw material, logistics and warranty costs as well as spending to ramp up production of the so-called 4680 battery cells. Tesla wants to cut costs by improving productivity in its new factories and reducing logistics costs, the group said in a press release.
Dominance in the weakening electric vehicle segment
Many other automakers are still figuring out how to make their new electric vehicle programs profitable, and in this context, Tesla wants to take advantage of its leadership position to solidify its position, the company explains.
While new models arrive on the market every quarter, Tesla’s dominance in the electric vehicle segment is gradually weakening: according to the firm Cox Automotive, in the United States, the group’s market share has gone from 79% in 2020 to 62% in the first quarter.
Tesla shares, which had fallen 65% in 2022 before rebounding around 47% since the start of the year, lost 4% on Wednesday in electronic trading on Wall Street.
Asked about profitability over the full year, Chief Financial Officer Zach Kirkhorn stressed that it would depend in particular on the ramp-up of new factories in Texas and Germany, and that the costs of logistics and raw materials, especially lithium, should decrease a little.
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The company also maintained its target of producing just over 1.8 million vehicles in 2022. It also stressed that production of its Cybertruck pickup was “on track” to start, as planned. , during the year in its new factory in Texas.
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