Electric Vehicle (EV) giant maker Tesla has announced its third quarter (Q3) report for 2023, which saw it fall short of profit and sales estimation.
The company posted weaker than anticipated financial results, which saw it post $23.4 billion in sales, during the three months ending September 30, below estimation of roughly $24.2 billion.
In Q3, Tesla delivered 435,059 vehicles, which was nearly 7% lower than deliveries in Q2. This was however expected due to a planned factory shutdown.
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The automaker missed Wall Street estimates on revenue and earnings. Shareholders at the company seemed to have expected a decline in the third quarter result, as they braced for Tesla’s Q3 earnings earlier in the day, with shares closing down 4.78% to $242.68.
GAP (non-adjusted) net income for the quarter was $1.85 billion, or 53 cents per share. Total gross profit declined 22% year-over-year. Total operating margin came in at 7.6%, down significantly from the year-ago quarter’s figure of 17.2%.
Tesla closed the third quarter with a free cash flow of $800 million, down from $1 billion last quarter.
The company’s incessant price cuts have visibly squeezed its 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 is also down from Q2 when it reported margins of 18.2%.
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’s slash in prices of its vehicles is to stay competitive as the demand for Tesla vehicles in China, which has historically been a top market for the automaker, is waning as local EV companies like BYD gobble up market share.
Meanwhile, despite the decline in earnings, Tesla argues that it is able to bear the price drop fairly well by reducing costs.
It wrote,
“Our cost of goods sold per vehicle4 decreased to ~$37,500 in Q3. While production costs at our new factories remained higher than our established factories, we have implemented necessary upgrades in Q3 to enable further unit cost reductions. We continue to believe that an industry leader needs to be a cost leader”.
Notably, Tesla hasn’t changed its outlook for the year, stating that it still plans to deliver 1.8 million vehicles by the end of 2023.
The company has announced cybertruck deliveries in November, and claims to have deployed production capacity for 125,000 trucks per year.
Tesla’s aggressive price cuts have juiced demand for its electric vehicles, but at a steep cost. The EV maker reported a 44% dive in third-quarter profit Wednesday, even as it notched a rise in revenue compared with last year thanks to more vehicle deliveries. EV adoption has slowed just as Tesla faces increasing competition from rivals including Ford and GM, and its most popular models are aging. The company said it will deliver its long-delayed Cybertruck starting in November, but the pickup isn’t expected to have mass-market appeal.