Tesla’s Net Profit Falls Despite Higher Sales Due to Sharp Discounting of Cars

Despite higher sales, Tesla’s net profit fell by 24% year-on-year to $2.5 billion (over 53 billion crowns) in the first quarter. The automaker stated this in its statement on Wednesday after the end of stock market trading. According to the press agencies, the sharp discounting of cars is to blame, which leaves traces on the trade balance of the American manufacturer of electric cars.

Revenue rose 24% to $23.3 billion in the first three months of the year, beating analysts’ expectations for a slightly higher figure. Tesla shares fell nearly four percent after the results were announced. However, since the beginning of the year, their price has increased by 50 percent.

Tesla delivered 422,875 electric cars to the market in the first quarter. The company thus equaled its previous record, but fell short of expectations. Its boss, Elon Musk, has boosted sales this year with several rounds of price cuts. Profitability is suffering as a result – Tesla’s operating profit margin fell from 16% to 11.4% quarter-on-quarter. A year ago, it was still 19.2 percent. However, Tesla is still ahead in this area. The margins of Ford and General Motors were recently five and seven percent, respectively, according to the DPA agency.

Musk justifies the lower prices by saying that he wants electric cars to be available to the masses. There is no shortage of demand. But in the last quarter, Tesla produced 18,000 more vehicles than it sold. “Tesla is going through a difficult phase. Inventories are rising,” said analyst Gene Munster of Deepwater Asset Management. Analysts see Musk’s aggressive pricing as a response to growing competition in the electric car business, which is moving from niche to mass market.

Musk said on Wednesday, according to Reuters, that Tesla is likely to bring fully self-driving technology to market this year. According to him, this should create significant profits that will compensate for the pressure on the margin.

In the meantime, not only because of the insistence of the authorities, established car manufacturers also got involved in the production of electric cars. In order to maintain a competitive advantage and defend its position in the market, Tesla has no choice but to lure customers to lower prices, writes the DPA agency. However, according to the company’s own statements, it expects to maintain one of the highest profit margins in the automotive industry in the future, despite the price reduction. Tesla is also sticking to an ambitious goal of expanding production at an annual growth rate of 50% and believes it is still on track to deliver around 1.8 million cars to customers this year.