Tesla investors are paying a heavy price for CEO Elon Musk’s attempts to defend the EV maker’s market position, with the shares falling sharply this week before and after the release of weak first quarter figures from the company.
But the weak figures and share price weakness also diverted attention from the intensifying competition from Chinese EV and battery giant BYD, which is now a global major, selling more vehicles than Tesla.
Tesla shares fell 9% on Thursday after the weak March quarter report revealed a fall in earnings despite more sales than in the first quarter of 2022.
Tesla earned $US2.9 billion excluding special items, down 22% from a year ago. Profits fell even more compared to the third and fourth quarters of last year.
The lower prices caused revenue to fall $US1.3 billion compared to the fourth quarter of 2022 despite record deliveries. Margins fell to just over 19%, a two-and-a-bit-year low which in turn produced the lower profit.
The fall on Thursday left share shares down more than 12% in the past week but still up 32% for the year so far.
Investors are increasingly concerned at the frequency of price cuts in the US (as are existing Tesla buyers who have seen huge losses in second hand values) – five this year including two in the past week.
Tesla’s price cuts this week were instructive as the company tried to match prices to the purchase subsidies available in the US from Inflation Reduction Act – the $US369 billion pot of gold that is now driving global investment in the renewables sector, especially battery materials.
The latest this week came a day after the start of new subsidy levels from the US government for EVs made predominantly from US raw materials or materials sourced from a list of countries with free trade deals with America (such as Australia).
The company cut the cost of the Model Y by $US3,000 and the Rear-Wheel Drive (RWD) Model 3 by $US2,000, two of its most popular units.
The cuts were made because the new subsidy levels on the sourcing of battery components reduced the RWD Model 3’s eligibility for a full tax rebate of $US7,500 a car.
The new $US39,990 price tag makes the RWD Model 3 Tesla’s cheapest car, but the vehicle’s tax credit dropped from $US7,500 to $US3,500 because the minerals in its batteries come from China. Other Tesla vehicles aren’t affected by the tax credit change.
Nor are prices in markets elsewhere in the world.
Tesla has been slashing its prices as it seeks to retain dominance in an increasingly crowded EV market. In January, the company cut the price of its vehicles by up to 20% after missing delivery estimates in 2022.
Big price cuts have also been made in China – its most important and competitive market – where the range of rival EVs is growing and prices are falling – BYD this week started taking orders for a small urban EV with a starting price of $US11,500 in China.
Tesla has slashed the cost of its Shanghai-produced Tesla by about 14%, making them almost 50% cheaper than those produced and sold in the US.
Tuesday this week (April 18) saw the start of the new US Treasury tax rebate policy for EV purchases, with two new requirements, each worth $US3,750 in tax credits.
The new rules require that 50% of the value of the car’s battery components must be produced or assembled in North America to qualify for the first credit.
For the second, 40% of the value of minerals in the vehicle’s battery—such as lithium, cobalt, and nickel—must be sourced from the United States or a designated trading partner (such as Australia).
Tesla helped kick off an EV price war. Now, those lower prices are hitting the company’s sales and profits.
Tesla, which cut prices on its electric vehicles four times in the quarter and twice so far this month, earned $2.9 billion excluding special items, down 22% from a year ago. Profits fell even more compared to the third and fourth quarters of last year.
The lower prices caused revenue to fall $US1.3 billion compared to the fourth quarter despite record deliveries, leading to tighter profit margins.
But US and other investors should be looking at the performance of BYD – Tesla certainly is, judging by the price cuts in America and China where it is erecting defences against all competitors, regardless of whether that alienates existing customers.
Tesla aims to lift production and deliveries above 1.8 million in 2023 and even though that will be a significant boost, it will not match the 3-to-3.6-million-unit target that BYD outlined in March.
BYD’s total New Energy Vehicles (NEV) passenger sales in the three months to March 31 totalled 547,917 units, up 92.4% year-on-year but down 19.6% from the 683,440 in fourth quarter of last year when they were driven by the ending of purchase subsidies in China.
Tesla delivered (its version of sales) 422,875 vehicles in the three months to March, compared with analyst expectations for 430,008 vehicles. Tesla said it produced 440,608 units in the latest quarter, up 44% from 305,048 units in the same period of 2022. That’s from all its factories in the US, China and Germany.
Tesla’s first quarter deliveries rose compared to those in the final quarter of 2022. It didn’t get the same sales boost from the ending of Chinese subsidies that BYD did.
Tesla remains the biggest produce of pure battery powered EVs – its 422,875 were all B-EVs, while BYD produced around 260,000 B-EVs. The rest were plug-ins (hybrids).
But what is interesting is BYD’s forecasts for 2023 – 2022 saw it produce more than 1.85 million B-EVs and P-EVs (Plug-ins) to Tesla’s 1.3 million all B-EVs.
This year BYD is eying 3 million sales and a target of 3.6 million if sales surge over the back end of 2023 as it has forecasts. It is revamping its model line-up, expanding it and has a new car plant in China and is building one in Thailand to start working in late 2024.
More importantly, after exporting 50,000 or so EVs last year, BYD has ambitions to ship between 600,000 and 800,000 units this year. China exported a total of 248,000 EVs and plug-ins in the March quarter – Tesla was a major exporter as was BYD.
BYD has made it clear it will not be shipping into car markets where there are dominant domestic brands like the US, much of Europe, Japan or South Korea. That leaves much of Asia, the Middle East, South and Central America, Africa, the Middle East, Australia and NZ as targets.
Tesla has announced it will build a battery factory in Shanghai – not for cars but its mega packs used for homes and businesses. It will be taking on CATL and BYD as well as a string of smaller local battery companies.
