Tesla stock falls 5% as price cuts hit quarterly profit margins

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Tesla Inc. stock dropped more than 5% in the extended session Wednesday after the electric-vehicle maker narrowly missed quarterly expectations for its revenue and saw adjusted profit margins drop as it cut its EV prices.

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earned $2.5 billion, or 73 cents a share, in the first quarter, compared with $3.3 billion, or 95 cents a share, in the year-ago period. Adjusted for one-time items, the company earned 85 cents a share.

Revenue rose 24% to $23.3 billion. Ebitda profit margins dropped to 18.3%, from nearly 27% in the year-ago quarter, while operating margins dropped to 11%.

“We are taking a view that we want to keep making as many cars as we can,” Chief Executive Elon Musk said on a call with analysts after the results. “It’s a good time to increase our lead further.”

Analysts polled by FactSet expected Tesla to report adjusted earnings of 85 cents a share on sales of $23.6 billion. Adjusted profit margins were seen at around 20%.

Tesla’s margins “are still among the best in the industry,” Musk said on the call, adding that Tesla is betting that going for higher volumes and a larger EV fleet, one that in the future would be fully autonomous, are the right choices at the moment.

Later on in the call, Musk said he expects Teslas to be capable of being fully autonomous vehicles later this year. Musk has made similar, and ultimately unrealized, predictions on numerous other occasions.

The CEO also deflected a few follow-up questions around demand, commodity prices and other aspects of the business, saying in several instances that he lacked a “crystal ball” to peer through the future.

In a letter to shareholders accompanying results, Tesla said it expects “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.”

The company unveiled a fresh round of U.S. price cuts earlier Wednesday in a bid to boost demand amid concerns of a weakening economy, but that are also bound to cut into its profit margins.

Pricing will continue to “evolve upwards or downwards, depending on a number of factors,” the company said in the letter.

The drop in Ebitda profit margin to 18.3% “doesn’t concern me at this point in time,” since it was reasonably close to expectations, Bill Selesky at Argus Research said after the results. “I don’t see it as a huge miss.”

Profit margins are “still very healthy” compared with others in the auto industry and taking into consideration the economy, said Jeff Windau, an analyst at Edward Jones.

Even as profit margins take a hit, Tesla “will find a way to grow and grow profitably based on past performance and the fact that the business is already EV-ready,” said Alyssa Altman, a consultant at Publicis Sapient who looks into transportation and mobility issues.

“The company has a strong advantage against most other competitors who are either building their presence or recreating their business models to be focused on the EV customer and software product development,” Altman said.

Tesla said it expects to “remain ahead” of its long-term goal of increasing its production rate by 50% annually, producing 1.8 million vehicles in 2023. Tesla has “a shot at 2 million, but that’s the upside case,” Musk said on the call.

The Cybertruck, Tesla’s electric pickup truck, is on track to begin production later in the year at the Texas plant and Tesla continues to “make progress” on its next-generation EV platform, it said in the letter.

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The company ended the quarter with cash and equivalents as well as investments of $22.4 billion, $217 million more than at the end of the fourth quarter.

The economy presents a “unique opportunity” for the company, Tesla said in the letter.

Tesla is aiming “to leverage our position as a cost leader. We are focused on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments.”

See also: Here’s how much Tesla short sellers have lost so far this year

In January, Tesla reported operating margins of 16% for the fourth quarter and 16.8% for all of 2022. First-quarter 2022 margins were “over 19%,” Tesla said last April.

Tesla pinned the drop in first-quarter operating margins in part to higher commodities, logistics and warranty prices, lower credit revenue, and increases in ramping up production of new battery cells.

Tesla stock has fallen about 46% in the past 12 months, compared with losses of around 7% for the S&P 500 index
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So far this year, however, the stock is up 49%, compared with an advance of 8% for the S&P 500.

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