Tesla Price Cuts Hammer Q1 Profit Margins, Stock Tumbles

"Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle," the company said.

Updated at 4:28 pm EST

Tesla  (TSLA) - Get Free Report posted first quarter earnings that were largely in-line with Street forecasts Wednesday, with revenues only marginally higher than estimates and profit margins falling notably amid the carmaker's relentless 2023 price cuts.

Tesla said adjusted earnings for the three months ending in March were pegged at 85 cents per share, down 20.5% from the same period last year and essentially match the Street consensus forecast.

Group revenues, Tesla said, rose 24.4% from last year to $23.33 billion, only just ahead of analysts' forecasts of a $23.29 billion tally.

Gross automotive margins were 18.3%, Tesla said, a big decline from the 26.8% figure from last year's first quarter and the 22.2% tally recorded over the final three months of 2022 following a series of price cuts in its biggest global markets.

Tesla lowered the price of its base Model Y SUV by around $3,000, extending this year's price reduction to around 20%, and cut the cost of its Model 3 sedan by $2,000, according to data taken from its U.S. website late Tuesday.

The group has also reduced the starting price of its Model 3 sedan by around 13.5% in China, according to data from its website. It lowered the price of its Model Y by around 10% to 259,900 yuan, the equivalent of around $37,660, as it dealt with increasing competition from China-based rivals in the world's biggest car market. 

"Our near-term pricing strategy considers a long-term view on per vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity and service. We expect that our product pricing will continue to evolve, upwards or downwards, depending on a number of factors," Tesla said.

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 added. "We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale."

Tesla shares were marked 3.93% lower in after-hours trading immediately following the earnings release to indicate a Thursday opening bell price of $173.50 each.

Tesla posted a record first quarter delivery total of 422,875 new vehicles, a 36.4% increase from the same period last year, but that tally missed Street forecasts as production outpaced demand. Production rose 44.5% to 440,808 vehicles as supply chain disruptions and Covid-related closures at its Shanghai factory faded.