The sharp price cuts helped Tesla achieve record quarterly delivery totals, but failed to boost demand beyond its rising production levels.
tesla (TSLA) – Get a free reportPosted weaker-than-expected first-quarter deliveries, the automaker detailed Sunday, with production outpacing demand despite a series of price cuts implemented earlier this year.
Tesla delivered a record 422,875 new cars during the three months ending in March, the company said in a statement, up 36.4% from last year and 4.3% more than the total of 405,278 achieved in the three months. months ending in December. Analysts’ forecast for deliveries ranged from 420,000 to around 440,000, and Refinitv set the March quarter target at 430,000.
Tesla delivered 412,180 units of its Model 3 and Model Y, as well as 10,695 units of its higher-priced Model S and Model X, the report said.
Production rose 44.5% to 440,808 vehicles as supply chain disruptions and covid-related lockdowns at its Shanghai factory eased. Model 3/Y production was pegged at 421,371 units with Model S/X production at 19,437 units.
“The Model Y/3 price cuts implemented in early 2023 have paid significant dividends for Musk & Co. as demand looks very strong despite an uncertain macro,” said Wedbush analyst Dan Ives, who has a ‘Outperform’ rating with a $225 price target on Tesla. “We believe that consumer demand from China improved during the quarter for Tesla and was key to the company overcoming the Street bogey for the March quarter.”
“The big question will be margins, as the price cut will have an impact on this front, although we believe that Auto (gross margin) above 20% remains the key threshold in the coming quarters,” he added.
Tesla shares closed at $207.46 each Friday on the Nasdaq, after rising 6.24% in the session to extend the year-to-date gain to around 60%.
However, near-term interest in Tesla shares remains high, with bets against the group pegged at around $16.42 billion, according to recent data from S3 Partners. The figure represents around 3.3% of the group’s outstanding shares.
Tesla reduced the starting price of its Model 3 sedan by around 13.5% in China, according to data on its website. It cut the price of its Model Y by about 10% to 259,900 yuan, the equivalent of about $37,660, as it dealt with growing competition from China-based rivals in the world’s biggest car market.
That’s an important development for Tesla investors, who are looking to assess the impact of a series of price cuts on overall profit margins. They will find solace in the fact that lower sales costs will boost demand and move the group closer to its stated target of 1.8 million. And they can take heart from CEO Elon Musk’s suggestion that 2023 sales could reach 2 million “if it’s a smooth year… without a major supply chain disruption or massive problem.”
But in addition to missing its own delivery targets, Tesla is also finding that demand-focused price cuts are hurting its profits, with auto gross profit margins shrinking to 25.9% for the three months ending in December.
That is the lowest figure in two years and a reduction from the 27.9% figure registered during the third quarter.
Musk attributed the margin pressures to battery production costs, the increase in factories in Berlin and Texas, higher costs for basic products and price cuts.
“Price really matters for electric vehicle sales,” Musk told investors in a conference call after the company’s earnings report. “Our price cuts will make all the difference for the average consumer looking to buy a Tesla. Our goal is to make our cars as affordable as possible.”
The group will publish its first-quarter earnings on April 19, after the market closes.
