Tesla’s profit fell sharply in the first three months of the year after it cut prices on its electric vehicles, the company said Wednesday.

The automaker, led by Elon Musk, said it earned $2.5 billion in the first quarter, down from $3.7 billion in the last three months of last year and $3.3 billion in the first quarter of last year. 2022.

Tesla sold more electric cars in the United States last year than all its competitors combined. But its market share fell when traditional carmakers like General Motors, Ford Motor and Volkswagen began selling electric cars that often undercut Tesla’s price. In China, Tesla has been overtaken by BYD. Tesla’s product lineup hasn’t changed much, which can be a big handicap as rivals lure buyers with hot new models.

To try to maintain its dominance in the market, Tesla has made a series of price cuts this year on all four of its models. Because it has much higher profit margins than other automakers, the company is theoretically in a strong position in a price war.

But price cuts seem to be eating into those margins fast. In the first quarter, gross margin, which measures the profitability of Tesla’s auto business, excluding revenue from the sale of clean energy credits, was 19 percent, up from nearly 27 percent for all of 2022.

Tesla’s average vehicle sales price in the first quarter of this year was nearly $46,000, down from $51,400 in the final quarter of 2022. But despite that 11 percent decline, vehicle deliveries Tesla’s were only 4 percent higher.

In its financial filing on Wednesday, Tesla said its margins had declined at “a manageable rate” and that it expected “continued cost reduction from our vehicles.”

Tesla’s adjusted earnings per share of 85 cents was in line with Wall Street analysts’ expectations, and its shares fell 4 percent in extended trading on Wednesday. Tesla shares are up nearly 50 percent this year but are still down 56 percent from their 2021 high.

Competition will intensify this year as traditional automakers expand their power lines. GM plans to start selling an electric version of its Equinox sport utility vehicle for around $30,000, as well as electric versions of the Silverado pickup and Blazer SUV.

Investors have been waiting for Tesla to respond with new vehicles. The company promised to start selling the Cybertruck pickup this year, though it won’t be available in large numbers until 2024. There is also speculation that Tesla will introduce a car priced lower than the Model 3 sedan, which starts at around $40,000 before the government. incentives

The company’s strategy of cutting prices to prop up demand also risks offending Tesla owners by lowering the resale value of their cars. Used Tesla prices have plummeted in recent months.

Tesla’s sales, like those of all automakers, have been hit by rising interest rates, making car payments more expensive for buyers. But Tesla has also been buoyed by changes to the tax credits electric cars receive in the United States.

Because it already makes batteries in the United States, it was easier for Tesla to qualify for the new rules that went into effect Tuesday that determine which vehicles qualify for a $7,500 tax credit. To be eligible, batteries must be made from lithium and other minerals mined or processed by a US trading partner, and battery components made in the United States, Canada, or Mexico.

Tesla also sells solar panels, batteries for home energy storage, and large batteries used by electricity producers and distributors to store solar and wind power. Musk said this month that Tesla would build a factory in Shanghai with the goal of assembling 10,000 of the giant batteries a year.

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