Tesla stock is down 6% as price cuts reduce quarterly profit margins

Tesla Inc. stock fell more than 6% in the extended session Wednesday after the electric-vehicle manufacturer narrowly missed quarterly revenue projections and saw adjusted profit margins fall as it reduced EV prices.

Tesla TSLA, -2.02% earned $2.5 billion, or 73 cents per share, in the first quarter, down from $3.3 billion, or 95 cents per share, the previous year. After accounting for one-time items, the corporation earned 85 cents per share.

Revenue increased by 24% to $23.3 billion. Ebitda's profit margins fell to 18.3%, down from over 27% in the previous quarter, while operational margins fell to 11%.

"We are taking the view that we want to keep making as many cars as we can," Elon Musk said on a conference call with analysts following the findings. "Now is a good time to extend our lead."

FactSet polled analysts, who expected Tesla to announce adjusted earnings of 85 cents per share on $23.6 billion in revenue. Profit margins after adjustments were roughly 20%.

Tesla's margins "are still among the best in the industry," Musk said on the call, adding that Tesla believes that aiming for bigger volumes and a larger EV fleet that will be completely autonomous in the future are the appropriate options at present.

Later in the call, Musk stated that Teslas will be capable of being completely autonomous vehicles by the end of this year. Musk has previously made similar, and ultimately unrealized, forecasts.

The CEO also dodged a few follow-up questions on demand, commodity prices, and other areas of the business, claiming that he lacked a "crystal ball" to see into the future on multiple occasions.

Tesla stated in a note to shareholders accompanying the results that it expects "ongoing cost reductions of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and will remain focused on operating leverage as we scale."

The company announced a new wave of price cuts in the United States earlier Wednesday in an effort to promote demand amid fears about a faltering economy, but this is certain to reduce its profit margins.

Pricing will "evolve upwards or downwards, depending on a number of factors," according to the letter.

The decrease in the Ebitda profit margin to 18.3% "doesn't concern me at this point in time," Bill Selesky of Argus Research said following the results because it was "reasonably close to expectations." "I don't see it as a huge miss."

Profit margins are "still very healthy" when compared to others in the auto industry and when the economy is considered, according to Jeff Windau, an analyst at Edward Jones.

Tesla plans to "remain ahead" of its long-term target of raising its manufacturing pace by 50% yearly, with 1.8 million vehicles produced in 2023. Musk stated on the call that Tesla had "a shot at 2 million, but that's the best-case scenario."

Tesla's electric pickup truck, the Cybertruck, is set to enter production later this year at the Texas factory, and the company continues to "make progress" on its next-generation EV platform, according to the letter.

The corporation concluded the quarter with $22.4 billion in cash and equivalents and investments, $217 million more than the previous quarter.

The economy creates a "unique opportunity" for Tesla, according to the letter.

Tesla hopes to "Leverage our position as a cost leader. We are focusing on rapidly increasing output, investing in autonomy and vehicle software, and staying on track with our growth investments."

Tesla reported operating margins of 16% for the fourth quarter and 16.8% for 2022 in January. Tesla's first-quarter 2022 margins were "over 19%," the company announced in April.

Tesla attributed the decline in first-quarter operating margins to higher commodity, logistics, and warranty pricing, lower credit revenue, and increased ramp-up of new battery cell production.

Tesla stock has dropped 46% in the last year, compared to a 7% drop in the S&P 500 index SPX, -0.01%. However, the stock is up 49% so far this year, compared to the S&P 500's 8% gain.

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