Tesla Earnings Met Expectations. The Stock Is Dropping.

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Tesla earnings met expectations, but its first-quarter gross profit margins were shocking—shockingly bad.

Tesla’s automotive gross profit margin, excluding regulatory credits, came in below 16%, down from about 24% in the fourth quarter of 2022. Gross profit margin per vehicle sold was about $6,800. A year ago, that number was about $15,700.

Overall, the quarter looked OK because the rest of the business is doing better than expected. Tesla reported a profit of 85 cents a share, meeting expectations, on sales of $23.33 billion, just a touch below forecasts for $23.67 billion.

Tesla also generated $1.1 billion in gross profit from the rest of its business, a record. Tesla deployed 3.9 gigawatt hours of battery storage in the quarter, also a record.

Tesla, though, is still mostly a car business though and shares are down after results were released falling 3.8% in after-hours trading Wednesday. Shares dropped 2% during Wednesday’s regular trading hours.

This is breaking news. Check back for updates. Read a preview of earnings below.

Tesla

is expected to report lower earnings on higher sales Wednesday evening after the electric-vehicle maker slashed prices again to draw in buyers.

The EV war, with traditional auto makers spending billions to catch Tesla (ticker: TSLA), has morphed into a price war. The car maker’s quarterly earnings will help investors figure out who is winning.

Wall Street is looking for per-share earnings of about 85 cents from $23.7 billion in sales for Tesla, according to FactSet. A year ago, Tesla reported $1.07 a share from $18.8 billion in sales.

Tesla cut prices significantly for its vehicles in January and lower prices pressure profitability. The EV maker cut prices for some of its vehicles again Tuesday. The price of a Model 3 rear-wheel drive was cut by $2,000 to $39,990, the company’s website showed. The cost of Model Y, long range and performance vehicles also were cut by $3,000. Some Tesla prices have come down by roughly one-quarter so far in 2023.

Tesla stock is down 2.8% in early trading Wednesday. It seems to be a reaction to the latest price cuts. The Nasdaq Composite is off 0.6%.

Analysts project first-quarter automotive gross-profit margins just north of 20%, down from roughly 25% in the fourth quarter of 2022 and more than 30% in the first quarter of 2022.

Canaccord analyst George Gianarikas projects automotive gross-profit margins for the first quarter and full year of 20.5% and 20.7%, respectively, although all the price cuts create an earnings “nail bitter.” He rates Tesla stock at Buy with a $275 price target.

Margins north of 20% will be important for investors, so will management commentary about margins for the balance of the year. On the company’s fourth-quarter conference call in January, Chief Financial Officer Zachary Kirkhorn indicated that Tesla could keep automotive gross-profit margins above 20% in 2023. That was a full-year outlook. He didn’t break down his guidance by quarter. At minimum, investors would like Kirkhorn’s January view reiterated.

Investors might have to wait for the conference call to get that detail. The call is slated to start at 5:30 p.m. Eastern time.

On that call, investors will also want to hear about order activity and demand following vehicle price cuts. CEO Elon Musk said on the fourth-quarter call that orders were coming in at twice Tesla’s manufacturing capacity. Demand still exceeding supply will be another thing investors want to hear Wednesday.

Higher demand can dull the sting of lower earnings. Tesla hasn’t reported a year-over-year decline in adjusted earnings since the third quarter of 2019, according to Bloomberg. Tesla reported 6 cents in earnings per share that quarter, compared with 13 cents the year before.

Tesla price cuts have had an impact on the entire auto industry. Earnings at

General Motors

(GM) and

Ford Motor

(F) are expected to drop year over year in 2023. Ford and GM, however, still make most of their money from selling conventional trucks and SUVs. Just how must those businesses are impacted by Tesla’s EV price cuts is something else for investors, analysts and Tesla management to discuss.

Whatever Tesla management says, investors should brace for volatility. Options markets imply shares will move about 8%, up or down, following earnings. Tesla stock has moved almost 8% on average over the past four quarterly reports. Shares have risen three of those times and fallen once over that span.

Shares rose 11% the day after the company reported fourth-quarter numbers. Tesla stock is up another 15% from that point. The gains leave Tesla stock up roughly 50% year to date, coming into Wednesday trading. It has been quite a run after shares dropped 65% in 2022. The

S&P 500
and Nasdaq Composite have risen about 8% and 16%, respectively, so far this year.

Write to Al Root at [email protected] and Callum Keown at [email protected]