Tesla did not make the profits that analysts had expected for the first quarter of this year after a series of price cuts aimed at increasing demand for its cars, which ultimately put pressure on profit margins.
Earnings fell to 85 cents a share, slightly below the average of 86 cents in analysts’ estimates, while free cash flow fell to a two-year low of $441 million. Analysts had expected these inflows to reach $3.24 billion in the period.
The Austin, Texas-based electric car maker explained the reasons for the findings, saying that “underutilization” of new plants pressured profit margins, along with higher costs of raw materials, goods, logistics, and lower revenues from environmental credits, all of which contributed to lower profits than a year earlier.
The company lowered prices to protect its position at the top of the market. Tesla said its operating profit margin was 11.4 percent in the first three months, down from 16 percent in the fourth quarter of last year and 19.2 percent in the first quarter of 2022.
Automobile revenues, the core part of Tesla’s finances, reached $19.96 billion in the first quarter, up 18 percent from a year ago. Revenues from automotive regulatory appropriations for the first three months of 2022 were $521 million, down from $679 million in the first quarter of last year.
In an earnings call, CEO Elon Musk stressed that there is an “unclear” economic environment that could affect people’s car shopping plans.
Musk said he expected 12 months of “inclement weather” in the economy. “Every time the Federal Reserve raises interest rates, it’s equivalent to an increase in the price of a car,” he warned. Whenever there is uncertainty in the economy, people will generally postpone large new capital purchases such as new cars, he said.
“We’ve taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” he said, but noted that he expects Tesla cars are “able over time to make a big profit through autonomy.”
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Before the results were announced, Tesla again lowered prices. The series of cuts have significantly reduced the costs of the S, 3, and X models since the beginning of the year. Model Y cars were priced at $51,380, $3000 less, and there was a 4.7 percent reduction in the price of the Model 3, which is now below $40,000 for the first time.
Some auto industry analysts say that the decline in demand for Tesla cars due to the entry of new competitors into the market may be one of the reasons for the price cuts.
Others say Tesla is using its large profit margin to gain market share from its competitors.
Earlier this month, Tesla announced plans to cut prices in Europe as production capacity on the continent improves.
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