Tesla margins in focus as EV price war kicks into high gear
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[April 17, 2023] By
Akash Sriram
(Reuters) - Tesla Inc's first-quarter margins are anticipated to have
hit a more than three-year low as the electric-vehicle maker slashed
prices to lure more buyers in the face of rising competition and a weak
economy.
The world's most valuable automaker, which commands over half of the
U.S. EV market, cut sticker prices on its cars five times between
January and April - a move that boosted quarterly sales in the quarter
ended March 31 but squeezed its industry-leading profit margin.
Tesla is expected to report auto gross margin of 23.2% for the quarter,
according to 17 analysts polled by Visible Alpha, down from a record
32.9% a year earlier and the lowest since the fourth quarter of 2019.
Finance chief Zachary Kirkhorn promised in January that Tesla would not
go below margins of 20% and an average selling price of $47,000 across
models. Analysts, however, predict further 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 said in a note.
The company on Friday slashed prices in Europe, Israel and Singapore. In
the United States, Tesla has cut the price of its base Model 3 by a
cumulative 11% since the start of the year, with a 20% reduction in its
base Model Y.
It has come under pressure as rivals such as Ford Motor Co have stepped
up competition at home, even as consumers cut back spending on recession
worries, while in China, Tesla's second-largest market, it is playing
catch up with BYD.
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Visitors check a Tesla Model 3 car next
to a Model Y displayed at a showroom of the U.S. electric vehicle (EV)
maker in Beijing, China February 4, 2023. REUTERS/Florence Lo/File
Photo/File Photo
Tesla faced trouble at its Shanghai factory on Monday, after
employees were informed about the company's plans to cut their
performance bonuses, which are linked to the factory's performance,
according to online posts and workers.
The company, led by billionaire Elon Musk, has said a ramp up in
production at its factories in Austin, Texas and Berlin would help
improve margins due to economies of scale.
Tesla is also likely to benefit from a plunge in lithium prices this
year, especially in China, where a slump in demand for EVs has left
stocks of the metal piling up.
"It's probable that Tesla's margins will be preserved based on the
reduction in commodity costs," said George Gianarikas, analyst at
Canaccord Genuity.
Tesla is targeting deliveries of 1.8 million vehicles this year,
though Musk said in January the automaker could hand out 2 million
vehicles if circumstances are favorable.
(Reporting by Akash Sriram in Bengaluru, Writing by Aditya Soni;
Editing by Sayantani Ghosh and Shinjini Ganguli)
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