On Monday, under the attention of the global audience, Musk's SpaceX starship to fight Mars was canceled dozens of seconds before ignition, and the second launch was tentatively scheduled for Thursday.
Whether the "flying in the sky" starship will fly smoothly tomorrow is unknown, but today, the financial report of Tesla "running on the ground" first "exploded" on the spot.
The first quarter financial report shows that Tesla's outstanding performance since the epidemic has suffered Waterloo in this quarter, and net income and earnings have fallen by more than 20% compared with the same period last year. In addition, the earnings report also revealed signals including weak sales and depleted cash flow, which caused Tesla's stock price to fall sharply after hours. Just before this earnings report, Tesla carried out a new round of price cuts in the United States, making Tesla's price reduction of various models this year have exceeded 20%.
Using profits for the market, Tesla's earnings report is full of hidden dangers
The consequences of Tesla's consecutive price cuts this year are evident in this quarter's financial data.
In the first quarter of this year, Tesla achieved revenue of $23.33 billion, basically the same as the market's expectation of $23.35 billion, an increase of 24% year-on-year. At the same time, in the first quarter of this year, Tesla produced more than 440,000 vehicles and delivered more than 422,000 vehicles, a year-on-year increase of 36%, and the scale of production and sales reached a new record high in the company's history. It can be seen that the price reduction strategy has indeed effectively stimulated the market, allowing Tesla to maintain steady revenue growth in the inflation and high interest rate cycle.
But price cuts are also bound to have a negative impact – a drop in profits. Despite significant increases in revenue and production and sales, Tesla's net income for the quarter was only $2.51 billion, down 24% from the same period last year, and GAAP earnings per share were 73 cents, down 23% from the same period last year, which was also the first year-over-year decline in EPS since the third quarter of 2019.
Tesla's profits and earnings fell significantly this quarter, image from Twitter
On the basis of the low profit margin in the fourth quarter of last year, Tesla's profit margin continued to decline across the board this quarter. Tesla Motors gross margin was 21.1% in the first quarter, continuing to decline from a 24-month low of 25.9% in the fourth quarter of last year, compared to 32.9% in the same period last year. Operating margin was 11.4%, down nearly 780 basis points year-over-year, compared to 16% in the fourth quarter of last year, and overall gross margin was 19.3% in the first quarter, down nearly 980 basis points year-over-year, compared to 23.8% in the fourth quarter of last year and 29.1% in the first quarter of last year, below expectations of 21.2%.
In addition to the price cuts, Tesla said that higher raw materials, goods, logistics and warranty costs, as well as reduced revenue from carbon credit sales, also contributed to the decline in profits.
In terms of sub-businesses, revenue from Tesla's core business reached $19.96 billion in the quarter, up 18% year-over-year. Energy revenue continued to soar, recording revenue of US$1.53 billion, up 148% year-over-year. Among them, Tesla's energy storage system deployment increased by 360% to 3.9 GWh, including Powerwall's home backup battery and utility-scale Megapack system.
Tesla's revenue composition in the first quarter of 2023, picture from CNBC
In addition to the sharp decline in profit margins, there are some potential hidden dangers in Tesla's earnings report.
Previously, Musk had said after a sharp price cut at the beginning of the year that Tesla's orders were growing rapidly, almost twice the production rate. So even if profit margins fall, if Tesla's demand remains high, total profits can still grow steadily.
But the problem is that Tesla's sales may not be as strong as Musk describes. Although Tesla's production and sales reached a new high in the quarter, from the perspective of sequential growth, Tesla's first-quarter deliveries only increased by 4% compared with the previous quarter, while the quarter-on-quarter growth rate in the fourth quarter of last year was as high as 17.8%. At the same time, Tesla's production in the first quarter actually exceeded deliveries by nearly 18,000 units, while for the Model S and X models, only 10,695 units were delivered in the quarter, the lowest level since the third quarter of 2021, and its production was almost double the sales volume.
Therefore, some analysts believe that if Tesla does not further reduce prices, the oversupply of Tesla vehicles will become more and more obvious, and it will not be able to maintain sustained growth in the future.
In addition, Tesla's free cash flow is shrinking rapidly. According to the financial report, Tesla's operating cash flow in the first quarter was $2.5 billion, far below market expectations of $3.24 billion. Free cash flow, net of capital expenditures, was $440 million, down 80% year-over-year, compared to $1.42 billion in the fourth quarter of last year. This time, if Tesla's $521 million in revenue from the sale of carbon credits is not included, Tesla's free cash flow for the quarter has become negative.
Although the decline in Tesla's profits was basically within the market's expectations, due to these potential risks and unclear market prospects, after the earnings report, Tesla's stock price plunged more than 6% on the basis of falling 2% within the day.
The U.S. market has cut prices six times in a row this year, and new cars are still missing
On the eve of the earnings report, many people found that Tesla silently lowered the price in the US market yesterday.
This time, Model Y AWD, Model Y Long Range, and Model Y Performance all dropped by $3,000, and the prices after the price reduction were $46,990, $49,990, and $53,990, respectively. The Model 3 has dropped by $2,000 and has fallen below $40,000 to $39,990.
It is worth noting that this is not only Tesla's second price cut this month, but also the sixth price reduction in 4 months this year. After a series of price cuts, Model 3 pricing is now 11% lower than at the start of the year, while Model Y is more than 20% lower than at the beginning of the year. In response to weak demand, rising interest rates and increasing competition for electric vehicle market share, in addition to the US market, Tesla has made price reductions in China, Israel and Europe.
At present, the basic equipment price of Tesla's Model 3 and Model Y main models has returned to the level of the first quarter of 2021, and Tesla's operating profit margin of 11.8% in the first quarter is lower than the 12.1% at that time. But even so, Tesla's gross profit margin is still more than double that of traditional car companies.
Of course, Tesla's earnings report also revealed some positive news. For example, the high-profile Cybertruck does not seem to bounce, Tesla said that the production plan is still progressing steadily, and it is expected to officially meet the market in the second half of this year. In addition, Tesla's factory production has entered a stable high-production cycle, the Berlin plant has achieved production of 5,000 Modle Y vehicles a week this quarter, the Shanghai plant has been successfully running at full capacity for several months, and the new Mexican Gigafactory is also under construction.
It is worth noting that in the earnings call, Musk once again said that Tesla will achieve full self-driving this year. Of course, this promise has been made for several years. But Musk still hasn't revealed any news about Tesla's new model, which has led to a further decline in Tesla's stock price after the earnings call.
From the current market situation, Tesla's automotive business may be difficult to achieve the goal of seizing the market and maintaining a gross margin of 20% by cutting prices. After this earnings report, many institutions also lowered their expectations for Tesla's full-year earnings and adjusted them to sell ratings.
Next, in addition to caring about how the starship can rush into the sky, Musk may also need to spend some energy thinking about how to make Tesla break through obstacles and run faster.
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