Tesla’s profits in the first three months of the year fell 24% from a year ago as the electric car maker slashed prices across its vehicle lineup.
The Austin, Texas, electric car and solar panel company said Wednesday it made $2.5 billion from January through March, down from $3.3 billion a year ago. Revenue rose 24% to $23.3 billion, but the company’s operating profit margin fell.
Overnight Wednesday, Tesla lopped $3,000 off the U.S. 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, the Long Range model went to $49,990 and the Y Performance dropped to $53,990. All versions of the Model Y were already eligible for the U.S. tax credit because the price limit for SUVs is $80,000.
The Model 3 Rear Wheel Drive, Tesla’s lowest-priced vehicle, saw a cut to $39,990. It’s eligible for the $7,500 tax credit because the price limit for cars is $55,000. The Model 3 Performance version stayed the same at $52,990.
Tesla also also reduced U.S. prices on many of its models early in the quarter, then did it a. The company slashed U.S. prices two more times in April, including overnight Wednesday, in an effort to boost demand. It trimmed them in Europe as well.
Neither of Tesla’s slower-selling bigger models, the S and X, are, and prices remained the same Wednesday for both of them.
The net income drop came even though Tesla’s sales last quarter rose 36% to a record 422,875 vehicles worldwide. That’s largely because the average sale price per vehicle fell just over $5,000 from the first quarter of 2022 due to the price cuts. Analysts estimated that the average Tesla sold for $46,850 last quarter, down from $52,100 a year earlier.
The company produced nearly 18,000 more vehicles than it sold during the quarter, indicating softening demand.
In its earnings release, Tesla said it’s aiming to leverage its position as a cost leader as other automakers try to handle electric vehicle costs.
“Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate,” the company said.
The company said it expects to reduce costs on its vehicles with improved production efficiency at its new factories and with lower shipping costs.
Analysts had been watching for whether the price cuts would affect Tesla’s income and profit margins for the quarter amid rising interest rates and pesky inflation. The average new vehicle loan in the U.S. is now at 7%, according to Edmunds. Tesla’s sliding profit margin doesn’t bode well for second-quarter net income since Tesla already has cut U.S. prices two times in April.
Tesla said its Model Y small SUV was the top-selling non pickup truck in the U.S. during the quarter, but it didn’t give numbers. The company doesn’t normally break out sales figures by region.
Shares of Tesla, which fell 2% during the trading day Wednesday, dropped another 4% in extended trading after the earnings were released.