Tesla’s profit plunges, adding to concerns about its strategy
Tesla reported Tuesday that it made significantly less money in the first three months of the year because of its tepid car sales, reinforcing concern among investors that the company led by Elon Musk is losing ground in the market for electric vehicles.
Profit fell 55%, to $1.1 billion, from the first quarter of 2023, the company said. And revenue fell 9%, to $21.3 billion.
A slump in earnings was seen as inevitable after Tesla said this month that sales in the first quarter fell 8.5% from a year earlier and after the company announced plans to lay off more than 10% of its employees worldwide, or about 14,000 people. The job cuts, including more than 2,000 workers at the company’s factory in Fremont, California, were interpreted as a sign that Tesla was struggling to bring costs in line with sinking revenue.
A year ago, in the first quarter of 2023, Tesla said it made $2.5 billion and had one of the best profit margins in the industry. But the company has been forced to cut prices, including in a new round last week, lowering the amount it makes on each car it sells. For a while, that strategy seemed to help bolster the company’s sales, but Tesla now appears to be struggling to attract buyers even with lower prices.
Tesla’s operating profit margin in the quarter was 5.5%, half as much as a year earlier and in line with how much other automakers tended to earn.
Tesla investors are increasingly worried that its falling sales and profit are a symptom of larger problems, possibly pointing to the company’s inability to effectively respond to increased competition from established automakers and new carmakers from China.
Musk signaled recently that Tesla would focus on autonomous driving technology and a vehicle he called the Robotaxi, sowing doubt about the company’s plans to develop a new, lower-priced model that could make electric cars affordable to a broader range of customers and people in more countries.
But Tesla said Tuesday that it remained on track to start producing a lowerpriced vehicle in the second half of 2025. In a change designed to reduce upfront investment, the car will use some new components and some borrowed from existing vehicles. That strategy will allow Tesla to make its new model without building new factories, the company said.
“This update may result in achieving less cost reduction than previously expected,” the company said in a presentation to investors.
Musk has appeared unfazed by the 40% decline in the price of Tesla shares this year.
He appeared to joke about the Tesla share price when he reacted to a decline in Nvidia shares last week that wiped more than $200 billion off the chipmaker’s value. “Rookie numbers,” Musk said on X, the social media platform he owns.
Musk defended Tesla’s price cuts, saying that all carmakers adjust prices, but usually through dealer incentives and other measures that are not quite as visible to buyers. Tesla sells cars directly to customers online rather than through franchised dealers.
“Tesla prices must change frequently in order to match production with demand,” he said.
Tesla blamed the sales decline on the conflict in the Red Sea that has disrupted global supply chains, a fire that halted production at the company’s factory near Berlin, and the ramp-up of an upgraded version of the Model 3 sedan in Fremont. Tesla also blamed a decision by other carmakers to sell more hybrid vehicles, which include a gasoline engine and batteries and electric motors, for putting pressure on sales of fully electric vehicles.
Musk postponed a planned trip Monday to India, where he was expected to meet Prime Minister Narendra Modi and announce plans for a factory, citing “very heavy Tesla obligations.”
While the postponement may disappoint investors who had hoped India could be a new source of growth, it could also provide reassurance that Musk was addressing Tesla’s problems more urgently. The company’s models are unlikely to sell in large numbers in India, where most car buyers prefer smaller and more affordable vehicles.
Tesla’s newest vehicle is the Cybertruck, a pickup that the company began producing last year. But the company has sold only around 4,000, according to information that emerged in a recall last week, suggesting it will not be a significant source of growth.