Tesla share price slides as profits drops 24% on signs of more price cuts

Texas-based EV maker reported a net profit of $2.5 billion in the January-March period

Tesla's total revenue during the first quarter jumped 24 per cent to more than $23.3 billion. Reuters

Tesla reported a 24 per cent drop in the first quarter net profit as the world’s biggest electric vehicle maker enacted price reductions on many models across different regions in the January-March period.

The company said consumers can expect more price reductions in the coming quarters.

It reported a net profit of $2.5 billion, which was more than 30 per cent down on a quarterly basis.

Shares of the company fell more than 2 per cent at the close of trading to $180.59 on Wednesday, giving the company a market value of $565.87 billion. Shares declined 6 per cent in after hours trading.

Despite the earnings results, the company's shares are up about 67 per cent since the start of the year. This is the company’s 15th straight profitable quarter and sixth consecutive three-month period with more than $2 billion in profit.

“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.

Total revenue during the quarter jumped 24 per cent to more than $23.3 billion, exceeding analysts’ expectations of $23.2 billion. It was 4 per cent down on a quarterly basis.

This was the third time in a row the company reported $20 billion or more in sales.

This month, Tesla discounted each version of its higher-volume Model 3 and Y vehicles by at least $1,000, and versions of its expensive Model S and X vehicles by $5,000. This was the second broad-based markdown for Tesla this year.

“It demonstrates that the firm has recognised that its competitive advantage has eroded, and that in order to fight for a larger part of the market, it must first comprehend the mechanism of competition,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.

“Of course, lowering prices implies lowering profit margins, and the issue now is: how do we know which will support its future earnings?”

Edward Moya, senior market analyst at Oanda for Americas, said: “Tesla price reductions are working … but they struggled to hit the street's gross margin estimates.

“These cost reductions will support their market share advantage and ultimately help with their margins as production becomes more profitable.”

The company's operating income decreased yearly to $2.7 billion in the first quarter, primarily due to reduced average selling prices of vehicles, higher raw material, commodity, logistics and warranty costs, and lower credit revenue, Tesla said.

Tesla's automotive revenue, which constituted more than 85 per cent of company’s total sales in the March quarter, rose 18 per cent year-on-year to almost $20 billion.

While the energy generation and storage revenue rose 148 per cent yearly to more than $1.5 billion. Services and other streams of revenue reached $1.8 billion, nearly 44 per cent up on an annual basis.

Tesla, which went public in 2010, said its cash, cash equivalents and investments “increased sequentially by $217 million to $22.4 billion” in the first quarter. It was driven mainly by a free cash flow of $441 million, partially offset by other financing activities, including debt repayments.

The Texas-headquartered company said that in the current macroeconomic environment, it considers 2023 as a “unique opportunity” for business.

“As many car makers are working through challenges with the unit economics of their EV programmes, we aim to leverage our position as a cost leader,” the company said.

“We are focused on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments.”

In the last quarter, Tesla produced more than 440,000 vehicles and delivered more than 422,000 vehicles. Vehicle production remained flat, but delivery was up by 4.2 per cent on a quarterly basis.

For 2023, Tesla aims to achieve more than 50 per cent growth rate and produce about 1.8 million cars.

Tesla produces its vehicles in Fremont, California; Austin, Texas; Shanghai, China; and Berlin, Germany. The company said it remained on track to begin production of its cyber trucks later this year at its gigafactory in Texas.

In the previous quarter in its energy segment, Tesla’s solar deployments increased by 40 per cent on an annual basis to 67 megawatts. However, it declined sequentially in the quarter, predominantly due to volatile weather and supply chain challenges.

The company had deployed 348MW of solar in 2022, the highest deployment since 2017.

Meanwhile, the energy storage deployments increased by 360 per cent year-on-year in the March quarter to 3.9 gigawatt hours.

The company said it has sufficient liquidity to fund its product road map, long-term capacity expansion plans and other expenses.

“We will manage the business such that we maintain a strong balance sheet during this uncertain period … we continue to believe that our operating margin will remain among the highest in the industry,” Tesla said.