Written by/Zhang Ou
Editor/ Tu Yanping
Design / Teacher Chao
Source/ Bloomberg, Wall Street Journal, by Dana Hull, Sean O'Kane
On the April 19 first-quarter earnings call, Elon Musk said Tesla will continue to cut prices to spur demand for its products, even at the expense of a striking profit margin.
Musk believes he has good reasons to do so. First, Tesla can afford to cut prices financially, giving it the upper hand over its competitors. "We believe that driving higher sales and expanding the fleet is the right thing to do, not low sales and high margins," he said. ”
However, he noted that Tesla is expected to generate substantial profits through Autopilot over time.
Since entering the price war in 2023, in the United States, the base price of Model 3 fell below $40,000 for the first time in many years, down about $7,000 from the beginning of the year; The best-selling Model Y started at nearly a third in just over three months, a 29% drop (from $65,990 to $46,990); The starting prices of the Model S and Model X have also been cut by about $20,000, a decrease of about 20%.
These jaw-dropping changes have affected the company's revenue.
In the first quarter of 2022, the company's operating margin was 11.4%, down from 16% in the previous quarter and 19.2% a year ago. For the first time in years, the Austin, Texas-based company declined to disclose its vehicle gross margin — a closely watched metric — only said it was down from the fourth quarter.
Wells Fargo analyst Colin Langan estimated in a research note that auto gross margin was 19 percent without credit accounting, below expectations of 21.8 percent.
Tesla Chief Financial Officer Zachary Kirkhorn said on a conference call that the shrinking margins have not affected Tesla's capex plans to ramp up production in the coming years. "We still have a lot of room before it becomes something we have to revisit," he said. ”
Despite the decline, Tesla's profit margins are still higher than those of other automakers. In 2022, GM's operating margin was 6.6%, while Ford Motor Company's margin was only 4%. Tesla executives say the company still has the best operating margins in the industry.
In the first quarter, Tesla's revenue rose 24% to $23.33 billion. Net income was $2.51 billion, down 24% from the year-ago quarter, and free cash flow slipped to $441 million, the lowest in two years.
Tesla's shareholder handbook made clear that "underutilization of new factories" put pressure on profit margins, and higher raw materials, goods, logistics and warranty costs, as well as reduced carbon credit revenue, all contributed to the decline in first-quarter earnings compared with last year.
Core business automotive revenue reached $19.96 billion in the first quarter, up 18% from last year. Total revenue increased by 24%. Carbon credit revenue was $521 million, down from $679 million in the first quarter of last year.
On the earnings call, Musk stressed that the uncertain macroeconomic environment could affect people's car purchase plans. He predicted a "storm" in the economy over the next 12 months, saying that "every time the Fed raises interest rates, it is equivalent to an increase in car prices," and said that whenever there is uncertainty in the economy, people usually postpone large purchases of new capital like car purchases.
Gene Munster, managing partner at Deepwater Asset Management, said: "Tesla is going through a tough time and they're holding on, but investors want to see some of these trends start to improve. ”
The electric vehicle giant said this year's production will match previous guidance of 50 percent compound annual growth over the years, and said it is on track to deliver about 1.8 million vehicles this year. In the first three months, they produced 440808 cars and delivered 422875, with an excess of about 18,000 vehicles. Musk has tried to ease concerns about excess inventory, telling analysts on a conference call that orders have now outstripped production.
In addition to good production expectations, Tesla announced that production of the long-awaited Cybertruck electric pickup is expected to begin later this year at its Texas factory, with small deliveries starting as early as the third quarter and mass production not until next year.
"It takes time to get the line running, and it's a really radical product." Musk said, "It's not made the way other cars are made. ”
One of the main reasons for the production delay may be the company's decision to manufacture the Cybertruck from stainless steel, which costs more than the steel typically used in automotive manufacturing. Because it easily springs back into its original shape, it cannot be stamped into fenders, and in addition, it requires special welding techniques, all of which make the production of the Cybertruck more complex than Tesla's other vehicles.
Due to its unique design, even less important components, such as wipers, need to be customized.
When asked about updated specs, such as mileage or whether there are unique features, Musk declined to give further details, saying only that "it's an incredible product to join the Hall of Fame."
In March, Tesla announced plans to build a factory in Monterrey, Mexico, just a day's drive from a relatively new factory in Austin, Texas. In early April, Tesla announced the construction of a factory in Shanghai to produce Megapacks, a large lithium-ion battery-based energy storage system. The plant is expected to be completed in the second half of 2024.
According to a shareholder letter, the company has also made progress on its next-generation automotive platform.
Design director Franz von Holzhausen said at an event in March that these future models would be announced "at a later date."
This article was originally produced by Automotive Business Review
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