Tesla Needs Profits Too

"Price wars have consequences, even for Tesla, the world's most valuable car company." That's how my colleague Al Root summarized Tesla's earnings report tonight. 

Al notes that the company's gross margins were below 16%, down from 21% in the fourth quarter. The margin figure had been above 20% since 2020. 

The metric leaves investors "with questions about EV demand and Tesla’s pricing strategy." Shares of Tesla were down 5.8% in late trading tonight.

CEO Elon Musk addressed the margin question at the start of the company's conference call with investors tonight: 

We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin. However, we expect our vehicles, over time, will be able to generate significant profit through autonomy. So we do believe we're like laying the groundwork here, and that it's better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy. This is an extremely important point. 

It's also important to note that efforts around autonomy and self-driving cars have taken longer than most experts have expected, including Musk himself. (That's a topic I addressed last year in a series of podcast episodes. Listen here.)

Al notes that the rest of Tesla's quarter "looked OK," with profits meeting expectations and revenue only a bit below forecasts. 

Read the rest of Al's earnings report here.