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Tesla Shares Drop Amid Margin Concerns Despite Record Deliveries

Tesla Inc (NASDAQ: TSLA) shares experienced a 5% decline on Monday due to increasing concerns about the electric vehicle maker's profit margins. These concerns arose after aggressive price cuts resulted in only a small quarterly increase in deliveries.

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Tesla's Q1 Deliveries Up 4% After Major Price Cuts

In January, Tesla reduced vehicle prices by as much as 20%, leading to a record 422,875 vehicle deliveries in the first quarter. However, this number represented just a 4% increase compared to the previous quarter.

Analysts Question Tesla's Ability to Meet 2023 Delivery Target

The recent delivery figures have prompted several analysts to question if further price cuts will be necessary for Tesla to achieve CEO Elon Musk's goal of 2 million deliveries in 2023. Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, expressed concerns about the sustainability of Tesla's price reductions.

Pressure on Tesla's Valuation Due to Delivery Targets

Lund-Yates also mentioned that despite sharp falls in Tesla's valuation over the last couple of years, achieving delivery targets for the year could still put more pressure on the group's valuation.

Tesla's Price War Affects EV Startups and Legacy Automakers

Tesla's price war, which began in January, has not only impacted money-losing EV startups like Rivian Automotive Inc and Lucid Motors but also legacy automakers like Ford Motor (NYSE: F) Co. This has led to increased fears about Tesla's industry-leading margins.

Bernstein Analysts Predict Further Price Cuts and Margin Pressure

Analysts at Bernstein suggested that Tesla may need to lower prices further this year or next to meet volume targets, which could lead to additional pressure on margins. They also noted that incumbents in the industry are well-funded and unlikely to back down.

Tesla Shares Trade at $197 After 9% Gain Last Week

In the days following the delivery report, Tesla shares gained 9%, trading at $197.

Lower Material Costs Could Offset Price Cut Impact on Production

Some analysts highlighted that decreasing the prices of materials used in EVs, particularly battery metal lithium, could help reduce production costs and offset the effects of price cuts.