On April 20th, Tesla announced its first quarter financial report for the 2023 fiscal year. The report showed that the total revenue of Tesla in the first quarter was 23.329 billion US dollars, a 24% increase compared to the same period last year’s revenue of 18.756 billion US dollars. The net profit was 2.539 billion US dollars, compared to last year’s net profit of 3.280 billion US dollars. The net profit attributable to common stock shareholders was 2.513 billion US dollars, compared to last year’s net profit attributable to common stock shareholders of 3.318 billion US dollars, a 24% decrease.
Tesla announced its lowest quarterly gross margin in two years, which was below market expectations. The company lowered prices multiple times to boost sales due to declining demand from an economic downturn and increased competition. Tesla CEO Elon Musk said that Tesla can take a hit to its profit margin for now to achieve growth during a recession and keep up with its competitors in China. He believes that it’s better to sell more cars with lower profit margins until they perfect autonomous driving technology and reap profits in the future. Despite uncertain economic prospects, Tesla’s orders still exceed its production capacity.
Tesla did not disclose the gross margin for its automotive business, which is a closely watched indicator. The company expects its product pricing to continue to adjust based on various factors, either up or down. Despite the decline in gross margin, Tesla still believes that its operating profit margin will remain the highest among large automakers. Tesla’s stock price fell 3.7% in after-hours trading. The company reported a total gross margin of 19.3%, lower than the 22.4% expected by 14 analysts. Analysts expected Tesla’s automotive gross margin to be 23.2% this quarter, lower than the record of 32.9% set in the same period last year.
Since late last year, Tesla has lowered prices multiple times in the United States, China, and other markets. Analysts believe that Tesla may need to further reduce prices to respond to the particularly fierce price war in the Chinese market, while its new factories in Berlin and Texas are also producing cars. Tesla reported a record $14.38 billion in inventory in the first quarter, up from $669 million in the same period last year. It burned $154 million in cash this quarter and would have consumed more cash if not for the $1.6 billion in “investment gains.”
Tesla faces fierce competition in the Chinese market, and Jesse Cohen, a senior analyst at Investing.com, said, “Tesla’s worrying China sales data shows that its car demand has declined more than expected in the face of growing competition from local electric vehicle companies.”
Musk announced in 2020 plans to produce a new type of battery cell to cut the cost of the most expensive part of an electric car in half, but he admitted at an investor day on March 1 this year that the company is still working to increase production of these battery cells. Musk hopes to reduce battery costs to fulfill his promise to make a $25,000 car and to update outdated models. Third Bridge analyst Alva Mohammed said, “Our experts believe that Tesla is overly reliant on its Model 3 and Model Y for growth… Investors are eager to see the launch of new products.” “In particular, they need a full-size SUV to replace the Model X and a smaller, cheaper Model 3 to drive sales.” Musk said in January that Tesla expects to begin production of the Cybertruck this summer, but mass production will not be achieved until next year. Tesla reiterated its expectation to deliver approximately 1.8 million cars this year.
