Tesla’s profit fell sharply in the first three months of the year after it cut the prices of its electric vehicles, the company said on Wednesday.
The carmaker, led by Elon Musk, said it had made $2.5 billion in the first quarter, a drop from $3.7 billion in the last three months of last year and $3.3 billion in the first quarter of 2022.
Tesla sold more electric cars in the United States last year than all its competitors combined. But its market share slipped as traditional carmakers like General Motors, Ford Motor and Volkswagen began selling electric cars that often undercut Tesla on price. In China, Tesla has been overtaken by BYD. Tesla’s product line has not changed much, which can be a big disadvantage as rivals attract buyers with alluring new models.
To try to maintain its hold on the market, Tesla has made a series of price cuts this year across its four models. Because it has much wider profit margins than other automakers, the company is in theory in a strong position in a price war.
But the price cuts appear to be quickly eating into those margins. In the first quarter, the gross margin that measures the profitability of Tesla’s auto business, excluding revenue from selling clean-energy credits, was 19 percent, down from nearly 27 percent for all of 2022.
The average selling price for Tesla’s vehicles in the first quarter of this year was nearly $46,000, down from $51,400 in the last quarter of 2022. But despite that 11 percent decline, Tesla’s vehicle deliveries were only 4 percent higher.
In a conference call to discuss the company’s quarterly results, Mr. Musk said Tesla’s profit margin remained among the highest in the industry. “We’re taking a view that pushing for higher volumes and a larger fleet is the right choice here,” he said, “versus a lower volume and a higher margin.”
On the call, Zachary Kirkhorn, Tesla’s chief financial officer, was asked to provide a 2023 forecast for the gross margin in Tesla’s auto business, but he said doing so would be difficult because of economic uncertainty.
Tesla said it expected to sell 1.8 million cars in 2023, up from 1.3 million last year.
The company’s adjusted per-share profits of 85 cents were in line with the expectations of Wall Street analysts, and its stock was down about 4 percent in extended trading on Wednesday. Tesla’s shares are up nearly 50 percent this year but still down 56 percent from their high, reached in 2021. The stock came under pressure last year partly because Mr. Musk sold billions of dollars of Tesla shares to help finance his acquisition of Twitter.
Competition will intensify this year as traditional carmakers expand their electric lineups. Volkswagen’s ID.4, a sport utility vehicle, starts at about $39,000, less than the $47,000 starting price for Tesla’s Model Y S.U.V.
G.M. plans to begin selling an electric version of its Equinox S.U.V. for around $30,000, as well as electric versions of the Silverado pickup truck and Blazer S.U.V.
Investors have been waiting for Tesla to respond with new vehicles. The company has promised to begin selling the Cybertruck pickup this year, although it won’t be available in large numbers until 2024. On Wednesday, Mr. Musk said the company was expecting a “delivery event” for the Cybertruck in the third quarter of this year.
“This is really a very radical product,” he said. “It’s not made in the way that other cars are made.”
There is also speculation that Tesla will unveil a car priced below the Model 3 sedan, which starts at $39,990 before government incentives.
The company’s strategy of cutting prices to shore up demand also risks offending Tesla owners by reducing the resale value of their cars. Prices for used Teslas have plunged in recent months.
Tesla’s sales, like those of all carmakers, have been affected by rising interest rates, which make car payments more expensive for buyers. But Tesla has also been bolstered by changes in tax credits that electric cars receive in the United States.
Because it already makes batteries in the United States, Tesla had an easier time qualifying for new rules that took effect on Tuesday and determine which vehicles qualify for a $7,500 tax credit. To be eligible, the batteries must be made with lithium and other minerals mined or processed by a U.S. trade ally, and with battery components made in the United States, Canada or Mexico.
Tesla also sells solar panels, batteries for home power storage, and large batteries used by electric producers and distributors to store solar and wind power. Mr. Musk said this month that Tesla would build a factory in Shanghai with the aim of assembling 10,000 of the giant batteries annually.
