![]() Also, as Tesla CEO Elon Musk has pointed out, rising interest rates have made it more expensive to get a loan on a car, which means Tesla has had to lower prices to make purchases seem more attractive (this is a case study in how rising interest rates can lower inflation).īut Tesla claims these margin cuts are manageable, and not only that, the company is taking a long-term view: For one, costs have come down, particularly with a massive global drop in the costs of resources like lithium after last year’s massive global spike. There are other reasons for these price drops. Tesla says it would rather focus on high volume and lower margins.Īnd it should be noted that higher volume also displaces more gas vehicles, which is better for the environment and public health. That said, Tesla is still planning to grow production at a CAGR of 50%, guiding for 1.8 million deliveries next year (about 31% growth from last year’s 1.37 million production). So we could expect average selling prices to go down further in next quarter’s earnings and perhaps another cut to margins. This is a big chunk, cutting operating margins almost in half – and note that there have been further price cuts, both in the US and elsewhere, since the end of the quarter. Tesla points out that these cuts reduced its margins but says that this margin reduction happened at a “manageable rate.” In Q1 last year, Tesla’s operating margin was 19.2%, and this year it’s 11.4%, a drop of 779 basis points. And the base Model 3 is now available for $40k before credits are taken into account, though it now only qualifies for $3,750 due to the IRS’ new battery guidelines. Last year, Tesla repeatedly hiked prices while the industry faced supply challenges and EV demand well exceeded supply.Īfter tax credits, the base Model Y is now under $40k, while many electric SUVs have higher starting prices. Tesla is pointing out that since its EV volume is so drastically higher than every other automaker’s, it can build cars at a lower cost than the competition.Īnd indeed, after yesterday’s price drops and other even larger price drops earlier this year, Tesla has gone from being near the top of the EV price range to near the bottom. 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. ![]() We are focused on rapidly growing production, investments in autonomy and vehicle software, and remaining on track with our growth investments.Īlthough we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate. As many carmakers are working through challenges with the unit economics of their EV programs, we aim to leverage our position as a cost leader. In the current macroeconomic environment, we see this year as a unique opportunity for Tesla. In a nod to the question on everyone’s lips, Tesla’s earnings report starts off immediately with a couple of paragraphs intended to address the effect of these price drops on its industry-high margins. This left investors questioning how these drops would affect margins, and Tesla has an explanation, but it’s perhaps only a partial one. Tesla has just released its Q1 2023 earnings report amidst several price drops since the beginning of the year. ![]()
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