Reduction of ASP of Tesla’s EVs resulted in Decline in its Profit in 2023 Q1

Tesla (NASDAQ: TSLA) announced  its 2023 Q1 financial results on April 19, 2023. According to the announcement, total revenues were up 24% (YoY, 3 months). On the other hand, income from operations and net income attributable to common shareholders (GAAP) were down 26% and 24%, respectively (YoY, 3 months). One of the main reasons for the decrease in these figures was a decline in average selling price. Also, increase in material and production costs have gave negative impacts on these figures. 

In addition, total GAAP gross margin and operating margin were 19% and 11%, respectively (down 977 bp and 779 bp, YoY, 3 months). Moreover, adjusted EBITDA margin was recorded as 18% (down 849 bp). Although these margins are declining, we believe that Tesla still maintains high margins overall.

Looking at segment revenues, total automotive revenues were up 18% (YoY, 3 months). In addition, energy generation and storage revenues were up 148%. The rapid growth of this business was very impressive. But it should be noted that the ratio of the revenues among the total revenues was only 6.6%. Services and other revenues were up 44% (YoY, 3 months).

In 2023 Q1, EV production increased by 44% and deliveries increased by 36%. Increase in production capacities in some of mega-factries seems to have contributed to these figures. 

Net cash provided by operating activities was down 37.1% (YoY, 3 months). In addition, free cash flow was down 96.5%.

As for future outlook of the company, please note that batteries are an important part that determine the ASP. It should be noted that Tesla seems to be continuing to make efforts to reduce manufacturing costs, possibly by in-house production and technological improvements of batteries. These kinds of “process innovation” would enable to reduce ASP. It makes the company expand the market share and to bring the higher profit margins.

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  1. Watanabe & Brothers’ Investment is holding shares of Tesla.
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