By Akash Sriram and Hyunjoo Jin
(Reuters) – Tesla Inc on Wednesday 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 maker has slashed prices several times in the United States, China and other markets since late last year, as CEO Elon Musk said Tesla could sacrifice its industry-leading margins to drive volume growth during a recession and keep pace with rising competition in China.
“It’s better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy,” Musk told analysts on a conference call. He said 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, upwards or downwards, depending on a number of factors,” the company said in a statement. It said 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 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 auto gross margin of 23.2% for the quarter, according to 17 analysts polled by Visible Alpha, down from a record 32.9% a year earlier.
GRAPHIC: Tesla’s price cuts collide with gross margins https://www.reuters.com/graphics/USA-STOCKS/TESLA/jnvwylmkevw/chart.png
Finance chief Zachary Kirkhorn promised in January that Tesla would not go below automotive gross margin of 20% and an average selling price (ASP) of $47,000 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 electric vehicles have recently boosted sales only modestly, Tesla has cut car prices six times so far this year.
Analysts say the EV maker may need to cut prices further, pressured by a price war especially in China even as its new factories in Berlin and Texas churn out cars.
Tesla in the first quarter reported record inventory of $14.38 billion, up from $6.69 billion a year earlier.
It burned $154 million in cash during the quarter, and would have consumed more but for a $1.6 billion gain attributed to “proceeds from maturities of investments.”
Tesla is facing stiff competition in China, where it is playing catch-up with local favorite 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.
NEW MODELS
Musk in 2020 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 $25,000, and fans have long hankered for Tesla to refresh its aging line-up of models.
“Our experts say Tesla is over-reliant on its Model 3 and Model Y for growth … investors are keen to see new product launches soon,” said Orwa Mohamad, analyst at Third Bridge. “In particular, they need a full-size SUV to replace the Model X and a smaller, cheaper Model 3 to drive volume.”
In January, Musk said Tesla expects to start production of Cybertruck this summer, but that volume production will not occur until next year.
Musk said on Wednesday’s call that he expects a delivery event for Cybertruck in the third quarter.
Tesla reiterated that it expects to achieve deliveries of around 1.8 million vehicles this year.
Tesla’s net profit fell by nearly a quarter to $2.51 billion from a year earlier. Excluding items, it reported a profit of 85 cents per share, in line with estimates from Refinitiv.
Revenue of $23.33 billion was also largely in line with Street expectations.
GRAPHIC: Tesla earnings https://www.reuters.com/graphics/EARNINGS-AUTOMATED/TSLA-OQ/akveqnboovr/chart.png
Tesla said profitability was also weighed down by higher raw-materials, logistics and warranty costs as well as the production ramp-up of its 4680 battery cells.
Deliveries of higher-priced Model S and Model X vehicles slumped from the previous quarter, it said.
(Reporting by Akash Sriram in Bengaluru and Hyunjoo Jin in San Francisco; Additional reporting by Noel Randewich in Oakland, California; Writing by Sayantani Ghosh; Editing by Anil D’Silva and Matthew Lewis)
By: OAN
