Tesla to continue EV price war, eyeing long-term profit brought by autonomy

As Tesla continues to cut prices for its products worldwide, the world’s largest BEV brand signaled that the price war would not end soon as the company can withstand more price cuts than others and eyes long-term profitability thanks to software and services.

On April 19, Tesla released its unaudited financial results for the first quarter of 2023, which ended in March. According to the results, Tesla posted quarterly sales of US$23.3 billion, up 24.38% on-year, and a quarterly profit of US$2.5 billion, which saw a 24.26% annual drop due to price cuts in the recent past. The EV maker reported an 11.4% operating margin for the quarter, down from 19.2% a year ago.

According to the official presentation, Tesla said their near-term pricing strategy considers a long-term view on per-vehicle profitability given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity, and service, adding that although the company implemented price reductions on many models across regions in the first quarter, its operating margins were reduced at a manageable rate. The company expected ongoing cost reduction of its products through improved production efficiency at their newest factories and lower logistics costs.

Despite repeated price cuts, Tesla posted more than 10% of its operating margin and profit margin for the first quarter, higher than major competitors, such as General Motors and Ford Motor, which had about 4–6% operating margin in 2022.

Just days ago, Tesla cut prices in the US for the second time in a month, with the price of Model Y cut by US$3,000 to US$46,990 and that of Model 3 cut to less than US$40,000 for the first time in years. Tesla also cut prices in Europe and China, pulling its competitors into a price war in China.

According to the latest financial results, its products’ ASP (average selling price) fell by 13.19% annually from US$54,382 to US$47,208. At the same time, its vehicle sales increased by 36.39% year-on-year to 422,875 units.

Tesla CEO Elon Musk said on the earnings call that while Tesla reduced prices considerably, its operating margin remains among the best in the industry. He continued, saying Tesla believes that instead of going after lower volume and higher margin, pushing for higher volumes and a larger fleet is the right choice.

Musk further said that Tesla expects their vehicles would be able to generate significant profit through autonomy, and they were laying the groundwork by shipping a large number of cars and subsequently harvesting the margin as they perfect autonomy.

Besides, Musk said regarding Autopilot and full self-driving, Tesla has crossed over 150 million miles driven by its full self-driving beta, which is growing exponentially, adding that it is a data advantage that no one can compete.

Meanwhile, Musk said Tesla would continue ramping up production to meet rising demand. Tesla’s Gigafactory in Texas, where Tesla’s long-awaited Cybertruck will be produced, is about to be completed, and Musk said the company anticipates holding a delivery event probably in the third quarter.

Source: Tesla, April 2023

Source: Tesla, April 2023

Source: Tesla, April 2023

Keyword: Tesla to continue EV price war, eyeing long-term profit brought by autonomy