On the eve of a highly anticipated earnings report, Tesla (TSLA) slashed prices of its Model 3 and Model Y EVs yet again, in fact bringing one of them below $40,000.
Last night’s price cut, the 6th one this year by Tesla in the U.S., saw each version of the Model Y SUV slashed by $3,000 each, with the Model 3 RWD (rear-wheel drive) dropping by $2,000 to $39,990. The base Model Y, known as the AWD or all-wheel drive version, now starts at $46,990.
Tesla has now cut prices of its base Model 3 by 11% this year alone, and its base Model Y prices have fallen by 20%, according to calculations done by Reuters. These latest price cuts come as the federal government limited the number of vehicles eligible for the electric vehicle tax credit, with Tesla’s base Model 3 RWD seeing its tax credit fall by half to $3,500.
Tesla Model Y order page (as of 4/19/23)
Now comes Tesla Q1 earnings after the bell, with stock slipping today though up around 50% year to date.
Wall Street is expecting Tesla to report $23.37 billion in top-line revenue and EPS of $0.860 on an adjusted basis. That revenue figure would represent a slight dip from the $24.32 million Tesla reported in Q4, but 24.6% higher than a year ago.
In terms of profit, Tesla is expected to report adjusted net income of $3.03 billion — a billion less than last quarter and $700 million less than a year ago. With revenue staying flat-ish and profit dipping, the effects of margin compression could be at play here.
As mentioned above, Tesla instituted a number of price cuts in the U.S., Asia, and some European markets in Q1 of this year, including last night. Investors will be watching how these price cuts affect gross margin figures, which last quarter came in at 23.8%, with automotive gross margin hitting 25.9% — both slightly less than quarter before.
Wall Street banks such as Evercore ISI have attempted to quantify the price cuts. “If we assume ~$2k US [price] cut ave translates to ~$1k global and then half of that is offset by cost improvements… then $500 cut to gross profit equates to ~100bps of gross margin pressure and implies 19% Q2/Q3 Auto gross margins (rough math,” the analysts said earlier this month.
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Similarly, Ryan Brinkman of JPMorgan has been wary of the price cut effect on Tesla’s profitability, as well as other EV-makers.
“We have been cautious about the profit impact of Tesla’s price cuts, writing that the lower prices are negative overall for Tesla, less negative for traditional automakers such as GM and Ford (given they are now likely to lose even more money in the interim on EVs, although have other profit centers to offset such losses), and most negative of all for pure-play battery electric automakers competing with Tesla (such as Rivian), as they, too, are likely to lose more money on EVs although do not have profits elsewhere to offset these losses,” Brinkman wrote earlier in April.
Tesla CEO Elon Musk views the new Tesla Model Y at its unveiling in Hawthorne, California on March 14, 2019. (Photo by Frederic J. BROWN / AFP) (Photo credit should read FREDERIC J. BROWN/AFP/Getty Images)
And similar to last quarter, analysts are keying in on the word “demand” as it pertains to production and backlog. In Q1 Tesla delivered around 423K vehicles and produced 440K globally; analysts at Evercore, for instance, would like to hear any indication of how Q2 deliveries are tracking, and if the order backlog is growing. Guggenheim analyst Ronald Jewsikow wrote in a note to clients that week that Tesla’s most recent U.S. price cuts indicated “slowing demand” for the EV-maker.
Looking further ahead to the post-earnings conference call, investors and analysts will be waiting to hear any progress on Cybertruck production which is slated to begin later this year, any new information on the gen 3 platform discussed at Tesla’s investor day, and more on the timeline ahead for construction of Tesla’s latest gigafactory in Mexico.
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Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.
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