Tesla drops 7% after Q1 earnings miss; analysts focused on margin compression

By Yasin Ebrahim and Senad Karaahmetovic

Investing.com — Tesla (NASDAQ:) reported Wednesday first-quarter earnings that just missed Wall Street estimates as margins were hurt by price cuts.

Tesla shares are down over 7% in premarket Thursday following the news.

Tesla earnings per share of 85 cents on revenue of $23.30 billion. Analysts polled by Investing.com anticipated EPS of 0.86 cents on revenue of $23.78B.

Gross margins, which have been closely watched after Tesla cut the prices of its EVs several times, fell to 19.3% from 29.1% in the same period last year, missing estimates of 21%.

Tesla cut prices worldwide on its EVs including in the U.S. where it recently cut prices for the sixth time this year amid rising competition.

“Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate,” the company said, adding that further cost cuts were likely.

“We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale,” it added.

Looking ahead, Tesla said it still sees full-year production of 1.80 million, compared with analyst estimates of 1.84M.

“For 2023, we expect to remain ahead of the long-term 50% CAGR with around 1.8 million cars for the year,” the company said.

Tesla also said that its Cybertruck remains on track to begin production later this year.

Citi analysts cut the price target on Tesla stock to $175 from the prior $192 per share.

“The Q1 margin miss confirms that price cuts weren’t offset to the extent previously expected. This, along with recent Q2 price cuts, could dampen NT sentiment since margins will likely come to be viewed as more vulnerable with Tesla fully committed to 2023 volume targets amid a softer macro backdrop. We expect the stock to pull back,” they said in a client note.

Goldman Sachs analysts said the Q1 earnings report “was an incremental negative, with the company’s pricing actions pressuring the automotive gross margin excluding credits by more than we had expected.”

Still, they remain positive on the company’s “long-term positioning in the market, including its cost structure and ability to provide full solutions (e.g. software, services, and charging).”

“We expect the focus for investors in the near term to be on the demand response to Tesla’s recent pricing actions. To the extent this leads to improved demand, then we believe the stock will recover from what we think will be near-term pressure,” the analysts wrote in a note.