Following earnings that actually met expectations, Tesla’s stock (TSLA) plunged 7% today. What then is the issue? Is Tesla’s reputation waning?
Yesterday, Tesla announced its Q1 2023 financial results. The company exceeded analysts’ $0.85 per share earnings projections and even shocked some by keeping its vehicle gross margin above 19% despite dramatic price reductions during the quarter.
Tesla nonetheless managed to produce an operating profit of 11% throughout the quarter and increased its cash position by hundreds of millions.
The automaker’s costs have also decreased this quarter, and it now has room to absorb the new price reductions that were put in place following the conclusion of the previous quarter.
The stock’s unexpected 7% decline this morning after the market opened is a result of this. What is going on?
Of course, I have no absolute knowledge, but I do have some suspicions. In my opinion, Tesla risked jeopardizing its credibility.
Many Tesla supporters were clinging to the belief that the company was slashing prices in order to spark a pricing war rather than in order to generate demand. The majority of people already knew what these results and the automaker’s remarks from yesterday would show: Tesla needs to lower its pricing to generate enough demand to match its output. Period.
However, the automaker has made an attempt to defend its pricing approach by saying that it is betting on making the self-driving cars it is now selling more profitable while maintaining lower gross margins by selling future software enhancements and subscriptions.
That, in my opinion, is where its legitimacy is waning.
Because it was selling more electric vehicles than any other company at a larger gross margin than anyone else, Tesla’s stock price increased significantly.
Now, while the latter is still largely accurate, the former is no longer. I’m done now.
It causes more people to worry about Tesla’s demand. To be fair, I do not believe that Tesla is primarily to blame for the majority of the demand concerns that led to those price reductions. The major reasons why individuals put off buying new cars are undoubtedly the high borrowing rates and the uncertain state of the economy.
Therefore, if those things change, I believe Tesla will experience strong demand once more and won’t need to lower prices further. The issue is that those are external factors that Tesla has no influence over.