Tesla profits fall on vehicle price cuts

NEW YORK

Tesla reported a drop in first-quarter earnings on April 19 as price cuts at Elon Musk’s electric vehicle company boosted demand but hit profit margins.

Profits came in at $2.5 billion, down 24 percent from the year-ago period on revenues of $23.3 billion, which were up 24 percent.

Shares fell on the results, which were in line with Wall Street expectations for earnings per share, but showed a lower profit margin than expected.

Faced with more EV competition from other automakers, Tesla has undertaken a series of price cuts in 2023, most recently over the last 24 hours on some models in the United States.

The company said its profit margins had been trimmed at “a manageable rate,” as it pointed to a “unique opportunity for Tesla” while signaling more price cuts ahead.

Tesla has argued that its head start in the EV market makes it “a cost leader” as rivals ramp up.

In a conference call with analysts, Musk described the price cuts as related to macroeconomic factors, saying the intention was to sell more autos, even at lower profit margins.

Musk pointed to the Federal Reserve’s string of interest rate increases as de facto price hikes, adding that worries about a recession and job loss mean “people will generally postpone a big purchase like a new car.”

But as a result of the price cuts, Tesla’s operating margin fell to 11.4 percent from 16 percent in the prior quarter.

Investors who are bullish on Tesla’s strategy see the price cuts as a way to grow its market share at a time when rivals are also ramping up production amid cost pressures.

But skeptics have said the pricing strategy raises questions about Tesla’s long-term profitability, undermining the company’s presumed exceptionality and suggesting that it should be valued like other automakers on Wall Street.