Tesla’s decision to slash EV prices put pressure on margins, causing profits to fall 44% to $1.85 billion in the third quarter from the same year-ago period, the company reported in its third quarter earnings.
Tesla reported Wednesday revenue of $23.35 billion in the third quarter, which gained 9% year-over-year thanks to higher vehicle deliveries and growth in other parts of its business.
While an increase in 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 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%.
The automaker missed Wall Street estimates on revenue and earnings. Shareholders seemed to have braced for Tesla’s Q3 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 closed the third quarter with a free cash flow of $800 million, down from $1 billion last quarter.
Price cuts and costs
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 also pointed to increasing operating expenses driven by Cybertruck, AI and other R&D projects that the company did provide further details on. The cost of idling its Fremont, California factory for upgrades and ramping production also chipped away at its net income. Tesla also cited foreign exchange impact as a negative factor.
On the upside, the company pointed to growth in vehicle deliveries, reduced cost per vehicle and the $7,500 Inflation Reduction Act credit benefit, gross profit growth in its energy storage business and growth in regulatory credits.
This story is developing …