Tesla profits suffer as the carmaker reduces prices to make the cars more affordable
The largest electric vehicle producer reports 21% lower earnings year on year
Tesla, Elon Musk’s brainchild and the US electric vehicle (EV) producer, has just announced its first quarter earnings for 2023, which amount to $2.51 billion and they appear to be 21% lower than the previous year.
This drop is largely due to the company’s decision to reduce the price of its four EVs — the Model S, Model X, Model Y and Model 3. While this strategy has helped Tesla to increase the quantity of EV units sold, it has cut into the company’s profit margins. However, it has to be noted that the sales have increased significantly, reaching $23.3 billion, representing a 24% increase from the same period last year.
While the costs for producing the cars have remained the same and capital expenditures have increased by approximately 17%, amounting to $2 billion, the seemingly selfless act has squeezed the automaker’s traditionally robust automotive gross margin.
Following the announcement of the drop in income, Tesla’s shares fell 4% in after-hours trading. Moreover, the company’s operating margin fell from 19.2% to 11.4%.
Tesla’s greater ambition is to take an active part in driving people away from fossil fuel vehicles and accelerate the shift towards electric vehicles. Viewed from this perspective, it is possible to argue that Tesla’s price-lowering strategy is a selfless move towards a greener future.