Tesla margins in focus as EV price war kicks into high gear

Tesla Inc’s (TSLA.O) first-quarter margins are anticipated to have hit a more than three-year low as the electric-vehicle maker slashed prices to lure more buyers in the face of rising competition and a weak economy.

The world’s most valuable automaker, which commands over half of the U.S. EV market, cut sticker prices on its cars five times between January and April – a move that boosted quarterly sales in the quarter ended March 31 but squeezed its industry-leading profit margin.

Tesla is expected to report auto gross margin of 23.2% for the quarter, according to 17 analysts polled by Visible Alpha, down from a record 32.9% a year earlier and the lowest since the fourth quarter of 2019.

Tesla finance chief Zachary Kirkhorn promised in January that margins would not fall below 20% and an average selling price of $47,000 across models. Analysts, however, predict further price cuts and margin pressure.

“While many investors have been hopeful that Q1 margins might be (at their) bottom, we don’t believe that will necessarily be the case, particularly given our expectation that further cuts are likely,” Bernstein analysts said in a note.

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