Tesla Inc.’s (TSLA.O) first-quarter margins are expected to hit a three-year low as the electric-vehicle maker cut prices to attract more buyers in a poor economy and increased competition.
The world’s most valuable manufacturer, which controls over half of the U.S. E.V. market, dropped sticker prices on its cars five times between January and April, increasing quarterly sales but lowering its industry-leading profit margin.
According to 17 Visible Alpha analysts, Tesla’s car gross margin would drop to 23.2% from 32.9% a year earlier and the lowest since the fourth quarter of 2019.
In January, Tesla finance chief Zachary Kirkhorn pledged 20% margins and a $47,000 average selling price across models. Analysts expect more price cuts and margin pressure.
“While many investors have been hopeful that Q1 margins might be (at their) bottom, we don’t believe that will necessarily be the case, particularly given our expectation that further cuts are likely,” Bernstein analysts wrote.
In Europe, Israel, and Singapore, the business cut rates Friday. Since January, Tesla has dropped the price of its base Model 3 by 11% and its base Model Y by 20% in the U.S.
Tesla’s domestic competitors, like Ford Motor Co (F.N.), have increased competitiveness as consumers cut non-essential spending due to economic fears, weakening the E.V. market. As a result, Tesla trails BYD Co (002594. S.Z.) in China, its second-largest market.
According to internet posts and workers, Tesla’s Shanghai facility had difficulty on Monday after employees were notified of the company’s plans to decrease performance bonuses tied to manufacturing performance.
Elon Musk’s business says increasing production at its Austin, Texas, and Berlin factories will boost margins due to economies of scale.
Tesla may gain from a drop in lithium prices this year, especially in China, where E.V. demand has fallen, and lithium stocks have accumulated.
According to Canaccord Genuity analyst George Gianarikas, commodity cost reductions will likely protect Tesla’s profitability.
In January, Musk estimated Tesla might deliver 2 million vehicles this year.
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