Price cuts take toll on Tesla’s 1Q profit

Price cuts across its model lineup cut into Tesla’s firstquarter net income.

The Austin, Texas, electric vehicle and solar panel company said Wednesday it made $2.51 billion from January through March, down 24% from $3.32 billion a year ago.

Revenue rose 24% to $23.33 billion, but the company’s operating profit margin fell, Tesla reported.

Early in the quarter Tesla reduced U.S. prices on many of its models, then did it a second time early in March. The company slashed U.S. prices two more times this month, including overnight Wednesday, in an effort to boost demand. Tesla also trimmed prices in Europe.

The net income drop came even though Tesla’s sales last quarter rose 36% to a record 422,875 vehicles worldwide. That’s largely because its average sale price per vehicle fell about $5,000 from the first quarter of 2022. Analysts estimated the average Tesla sold for $46,850 last quarter, down from $52,100 a year earlier.

The company said it produced nearly 18,000 more vehicles than it sold during the quarter, indicating softening demand.

Tesla’s operating margin fell from 19.2% in the first quarter of 2022 to 11.4% this quarter, the company reported. Tesla said it’s aiming to leverage its position as a leader as other automakers try to handle EV costs.

“Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate,” the company said.

Tesla said it expects to reduce costs on its vehicles with improved production efficiency at its new factories and with lower shipping costs. Analysts had been watching for whether the price cuts would affect Tesla’s income and profit margins for the quarter amid rising interest rates and pesky inflation.

OVERNIGHT CUTS

Ahead of its quarterly report, Tesla lopped $3,000, or about 6%, off the starting prices for all three versions of the Model Y small SUV, Tesla’s top-seller. The automaker also cut $2,000, or about 5%, from the starting price of a version of the Model 3 small sedan.

Tesla is expected to cut the Model 3 prices to make more cars loaded with options eligible for the federal $7,500 EV tax credit. With options, some Model 3s exceed the government’s $55,000 price cap for eligible cars.

The $3,000 price cuts on the Model Y dropped the lowest-priced Dual Motor model to $46,990. The Long Range model went to $49,990 and the Y Performance dropped to $53,990. All versions of the Model Y were already eligible for the U.S. tax credit because the price limit for SUVs is $80,000.

The Model 3 Rear Wheel Drive, Tesla’s lowest-priced vehicle, saw a cut to $39,990. The Model 3 Performance version stayed the same at $52,990. Neither of Tesla’s slower-selling bigger models, the S and X, are eligible for tax credits, and prices remained the same Wednesday for both.

Some industry analysts say demand is poised to slow for the company’s vehicles as more competition enters the market. Others say Tesla is using its high profit margins to take market share from competitors.

Tesla did not respond to a message left Wednesday seeking comment on the price cuts, which follow others earlier this week overseas in Europe, Israel and Singapore, according to analysts.