Tesla Inc boss Elon Musk doubled down on Wednesday on the price war he began late last year, saying the electric vehicle (EV) maker would prioritize sales growth over profits amid a weakening economy. The company posted its weakest quarterly gross margin in two years, missing market expectations, as it slashed prices in markets including the U.S. and China to boost demand and fend off growing competition.
Shares of the Austin, Texas-based automaker fell 6% in after-hours trading.
“It’s better to move a lot of cars at lower margins and reap those margins in the future as we perfect autonomous driving,” Musk told analysts on a conference call. Orders from an electric carmaker have exceeded production.
Musk had earlier said he hoped to achieve 2 million vehicle deliveries this year, but declined to reiterate that on Wednesday, but stuck to the company’s official target of 1.8 million.
“Tesla’s worrisome China sales figures suggest that demand for its vehicles has slowed more than expected in the face of growing competition from local EV companies,” said Jesse Cohen, senior analyst at Investing.com.
Tesla said in a statement that it still believes its operating margin will remain the highest among the major automakers.
The company reported a combined gross margin of 19.3 percent, missing consensus estimates of 22.4 percent, according to 14 analysts polled by Refinitiv.
Tesla also doesn’t report its gross margin on vehicles, a figure closely watched by investors, and Musk said a weak economy made it difficult to provide an outlook on margins.
The company reported a first-quarter auto gross margin of 19 percent, excluding regulatory credit, down from 24 percent in the previous quarter, according to Reuters calculations.
On Wednesday, Tesla said its average selling price fell in the first quarter from a year earlier, without elaborating.
Analysts said the electric carmaker may need to cut prices further as it is under pressure from a price war, especially in China, even though its new plants in Berlin and Texas are producing cars.
Tesla posted a record inventory of $14.38 billion in the first quarter, up from $6.69 billion a year earlier.
It burned through $154 million in cash during the quarter, and it could have burned through more if it weren’t for a $1.6 billion gain from “maturity investment gains.”
Musk announced in 2020 plans to produce a new battery to halve the cost of the most expensive part of an electric vehicle, but the company has been working to ramp up production of those batteries.
Tesla aims to cut assembly costs in half, but has not said when it will launch its long-awaited affordable electric car. Tesla fans have been eager for Tesla to update its aging model lineup for some time.
In January, Musk said Tesla expects to begin production of the Cybertruck this summer, but mass production won’t happen until next year.
Musk said on Wednesday’s conference call that he expects Cybertruck deliveries to take place in the third quarter.
Tesla’s net profit fell by nearly a quarter to $2.51 billion from a year earlier, due to higher raw material, logistics and warranty costs and higher production of its 4680 batteries.
Earnings and earnings adjusted for one-time items were in line with Refinitiv estimates.
First published date: April 20, 2023 at 09:18 AM CST