Solid demand: Musk departs the company’s office in Washington. The Tesla CEO says that although the economy remains uncertain, the electric vehicle maker’s orders exceed production. — Reuters
SAN FRANCISCO: Tesla Inc posted its lowest quarterly gross margin in two years, missing market estimates as it grappled with aggressive price cuts meant to spur demand in a sagging economy and fend off rising competition.
The electric vehicle (EV) maker has slashed prices several times in the United States, China and other markets since late last year, as chief executive officer Elon Musk said Tesla could sacrifice its industry-leading margins to drive volume growth during a recession and keep pace with the rising competition in China.
“It’s better to shift a large number of cars at a lower margin and harvest that margin in the future as we perfect autonomy,” Musk told analysts on a conference call.
He said that although the economy remains uncertain, the EV maker’s orders exceed production.
For the first quarter, Tesla did not report automotive gross margin, a closely watched figure.
“We expect that our product pricing will continue to evolve, either upwards or downwards, depending on a number of factors,” the company said in a statement. It added that it still believes its operating margin will remain the highest among big carmakers.
Shares of the Austin, Texas-based automaker were down 3.7% in after-hours trading.
The company reported a total gross margin of 19.3%, short of market expectations of 22.4%, according to 14 analysts polled by Refinitiv.
Analysts had expected Tesla to report an auto gross margin of 23.2% for the quarter, according to 17 analysts polled by Visible Alpha, down from a record 32.9% last year.
Finance chief Zachary Kirkhorn promised in January that Tesla would not go below an automotive gross margin of 20% and an average selling price (ASP) of US$47,000 (RM208,445) across models.
On Wednesday, Tesla said its ASP declined in the first quarter from a year earlier but did not elaborate.
In the United States, where federal subsidies for EVs have recently boosted sales only modestly, Tesla has cut car prices six times so far this year.
Analysts said the EV maker may need to cut prices further, pressured by a price war, especially in China, even as factories in Berlin and Texas churn out cars.
Tesla in the first quarter reported a record inventory of US$14.38bil (RM64bil), up from US$6.69bil (RM29.6bil) in 2022.
It burned US$154mil (RM683mil) in cash during the quarter and would have consumed more but for a US$1.6bil (RM7.08bil) gain attributed to “proceeds from maturities of investments”.
Tesla is facing stiff competition in China, where it is playing catch-up with local favourite BYD.
Car sales growth in China was flat in March, according to the China Passenger Car Association.
“Tesla’s worrying China sales figures indicate demand for its vehicles is slowing more than expected in the face of rising competition from local EV companies,” said Jesse Cohen, senior analyst at Investing.com.
In 2020, Tesla announced plans to produce a new battery cell to halve the cost of the most expensive part of an EV, but admitted at Tesla’s investor day on March 1 this year that the company is still struggling to ramp up production for those cells.
Musk is looking to lower battery costs to deliver on his promise of making a car priced at US$25,000 (RM110,750), and fans have long hankered for Tesla to refresh its ageing line-up of models.
“Our experts say Tesla is overly dependent on its Model 3 and Model Y for growth, and investors are keen to see new product launches soon,” said Orwa Mohamad, an analyst at Third Bridge. — Reuters
