Tesla confirmed it had planned to go against the recent trend of the wider car industry and prioritise sales over profits with its recent price cuts, resulting in lower-than-expected margins for the first quarter of the year.
“We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” CEO Elon Musk said on the company’s call with analysts after releasing its first-quarter figures.
Tesla delivered 422,875 vehicles in the first three months, up 36% on the same period the year before. Revenue was up 18% to almost $20 billion but operating profits fell 26% to $2.7 billion. Operating margin fell to 11.4%, down from 19.2% in the same period in 2022.
Tesla pointed to the price cuts for its best-selling Model Y and Model 3 lines globally as the reason, along with higher raw material costs.
However, Tesla expects each car sold to continue to earn more money for the company as customers subscribe to increasing levels of autonomy, as well as Supercharging and other connectivity services. “We're making a car that if autonomy pans out, and we think it will, where that asset will actually be worth a hell of a lot more in the future than it is now,” said Musk on the call.
Over the years, Musk has consistently promised imminent hands-free autonomy for Tesla cars, despite the company having yet to offer anything beyond level two-plus, which requires the driver to focus on the road.
Despite that, Musk said he was willing to sell new cars for “zero profit” in the future because he was confident of recouping investment in subscriptions.
Other car makers have offered a different view to Musk’s as to why Tesla has cut prices.
Ford CEO Jim Farley pointed out at the sidelines of a charity event in Detroit on Thursday that Tesla's range was ageing compared with the competition. Musk’s response was entirely predictable in the absence of new models, in Farley’s view. "I think what he is going to learn is that product freshness matters a lot," said Farley, according to Reuters.
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