Tesla Q1 net income falls 24% as price cuts reduce per-vehicle profit

Electric car company Tesla has reported a 24% decline in net income for the first quarter of 2023 compared to the same period last year. While sales increased by 36% to a record 422,875 vehicles worldwide, the average sale price per vehicle fell by just over $5,000 due to multiple price cuts across Tesla’s model lineup. These price cuts led to a reduction in the amount of money generated per vehicle, resulting in a decline in net income from $3.32 billion to $2.51 billion.

Key Points:

• Tesla's Q1 2023 net income declined 24% from the same period last year due to multiple price cuts across its model lineup, which reduced the amount of money generated per vehicle.
• Revenue increased 24% to $23.33 billion, but the company's operating profit margin fell from 19.2% to 11.4%.
• Tesla produced nearly 18,000 more vehicles than it sold during the quarter, indicating

Despite the decline in net income, Tesla’s revenue rose by 24% to $23.33 billion. However, the company’s operating profit margin fell from 19.2% in Q1 2022 to 11.4% this quarter. Tesla CEO Elon Musk indicated that price cuts may continue, as the company evaluates them daily and wants to produce the maximum number of vehicles possible to increase its world-leading electric vehicle market share. “Orders are in excess of production,” he said.

In an effort to boost demand, Tesla has reduced US prices on many of its models multiple times, including two times in April alone. The company also trimmed prices in Europe. However, even with these price cuts, the company produced nearly 18,000 more vehicles than it sold during the quarter, indicating softening demand.

Musk stated that Tesla wants to sell more vehicles at lower prices so it can later generate revenue from software, service, and its $15,000 “Full Self-Driving” system that will turn cars into robotaxis and increase their value. Despite the name, these cars cannot currently drive themselves, and Tesla warns drivers that they must be ready to intervene at all times.

Tesla’s partially automated driving systems have come under scrutiny from US safety regulators. The National Highway Traffic Safety Administration has sent investigative teams to more than 30 crashes since 2016 in which Teslas suspected of operating on Autopilot or “Full Self-Driving” have struck pedestrians, motorcyclists, semi-trailers, and parked emergency vehicles. At least 14 people were killed in these crashes.

In February 2023, NHTSA pressured Tesla into recalling nearly 363,000 vehicles with “Full Self-Driving” software because the system can break traffic laws. The agency said the system can make unsafe actions such as traveling straight through an intersection from a turn-only lane or going through a yellow traffic light without proper caution. The problems were to be fixed with an online software update.

In its earnings release, Tesla stated that it expects to reduce costs on its vehicles with improved production efficiency at its new factories and with lower shipping costs. The company is aiming to leverage its position as a cost leader as other automakers try to handle electric vehicle costs.

Shares of Tesla fell 2% during trading on Wednesday and dropped 6% more in extended trading after the earnings were released. Overnight Wednesday, Tesla cut $3,000 off the US starting prices of all versions of the Model Y, its top-selling model. The cuts dropped the lowest-priced Dual Motor model to $46,990, while the Model 3 Rear Wheel Drive, Tesla’s lowest-priced vehicle, saw a cut to $39,990.