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Tesla Q3 profit falls 44% on EV price cuts

Tesla’s decision to slash EV prices put pressure on margins, causing profits to fall 44% in the third quarter from the previous year.

The automaker missed Wall Street estimates on revenue and earnings. Shareholders seemed to have braced for Tesla’s earnings earlier in the day, with shares closing down 4.78% to $242.68. Shares have risen in after-hours trading by 1.5%.

Tesla reported revenue of $23.35 billion in the third quarter, which gained 9% year-over-year thanks to higher deliveries. While higher sales is positive, the company’s continued price cuts, particularly the Model 3 and Model Y vehicles, has squeezed margins — a trend that has continued for the past several quarters.

Tesla reported a gross margin of 17.9% in the third quarter, falling from 25.1% in the same period last year. It’s also down from Q2 when it reported margins of 18.2%.

Tesla closed the third quarter with a free cash flow of $800 million, down from $1 billion last quarter.

Tesla attributed its fallen profitability margin largely to its reduced pricing of vehicles. In the third quarter, Tesla cut prices for its Model S and Model X luxury vehicles by as much as $18,500 per car. Price cuts for the more popular and affordable Model 3 and Model Y continued into October.

Tesla has repeatedly teased a new $25,000 model, on which the automaker might provide updates during today’s earnings call. Tesla will need to sustain demand by introducing new vehicles to what is now a somewhat limited lineup of models.

Of course, the Cybertruck pickup is another passenger vehicle that is set to join Tesla’s lineup any day now. First deliveries were expected in the third quarter, which came and went without a delivery event. Tesla said it hopes to get the first Cybertrucks to customers before the end of 2023. In 2024, Tesla expects to ramp Cybertruck production. According to the Q3 earnings report, the gigafactory will have capacity to produce less than 125,000 Cybertrucks once it reaches mass production.

Getting the Cybertruck to production is part of what is eating into Tesla’s profits. The EV-maker’s operating expenses increased 43% year-over-year to $2.4 billion, which Tesla attributed an increase spend on getting the Cybertruck to market, as well as investing more in AI and other R&D projects.

Over the summer, Tesla said it began production on its Dojo supercomputer, which the company is betting on to help advance its “full self-driving” (FSD) advanced driver assistance system and make it actually fully autonomous. To that end, Tesla has more than doubled the size of its AI training compute to “accommodate for our growing dataset as well as our Optimus robot project.” The automaker said it’s training Optimus for simple tasks through AI “rather than hard-coded software” and is further upgrading the robot’s hardware.

This story is developing …

source: TechCrunch