Tesla Shares Fall 4.5% After Hours as Margins Underperform

  • For the first quarter, Tesla recorded $23.3 billion in sales.
  • As a result of severe price reduction, net income dropped by 24% compared to the same period last year.
  • The automaker’s stock price fell as investors doubted its high valuation.

The carmaker located in Austin, Texas reported first-quarter gross margins of 19.3 percent, the lowest level since 2020 and far lower than anticipated. Bloomberg predicted that margins would fall to 23%, which would be a decrease of around 600 basis points from the previous year.

With first-quarter deliveries at a record high, Tesla’s emphasis in this earnings report was on the company’s profitability. The company’s first-quarter sales was $23.3 billion, up 24% year over year but below the $23.8 billion predicted by experts. Consistent with market expectations, adjusted profits per share were $0.85.

While Tesla’s value has dropped from its all-time high, it is still much higher than its competitors. Compared to the average of 1.26, Tesla’s Enterprise Value (EV) to Sales ratio is 6.93.

Analyst Dan Ives of Wedbush Securities, who has a $225 price objective on Tesla, predicted that margins “in the teens” would signal the end of Tesla’s price drop strategy before the results were released.

Some experts, though, are more upbeat. As Baird’s Ben Kallo pointed out in a research note released before Tesla’s results, the company “will be able to maintain industry leading operating margins and is in the best position among auto peers to weather economic headwinds.”

On Tuesday, Tesla slashed prices for the sixth time this year, putting the pressure on rivals in the congested electric vehicle industry. On Monday, French carmaker Renault said that, in an effort to maintain global competitiveness, it will be reconsidering its pricing strategy for electric vehicles.

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