Tesla margins in focus as EV price war kicks into high gear

(Reuters) - Tesla Inc's first-quarter margins are anticipated to have hit a more than three-year low as the electric-vehicle maker slashed prices to lure more buyers in the face of rising competition and a weak economy.

The world's most valuable automaker, which commands over half of the U.S. EV market, cut sticker prices on its cars five times between January and April - a move that boosted quarterly sales in the quarter ended March 31 but squeezed its industry-leading profit margin.

Tesla is expected to report auto gross margin of 23.2% for the quarter, according to 17 analysts polled by Visible Alpha, down from a record 32.9% a year earlier and the lowest since the fourth quarter of 2019.

Tesla's automotive gross margin set to decline again, https://www.reuters.com/graphics/TESLA-RESULTS/lgvdkxqejpo/chart.png

Tesla finance chief Zachary Kirkhorn promised in January that margins would not fall below 20% and an average selling price of $47,000 across models. Analysts, however, predict further price cuts and margin pressure.

"While many investors have been hopeful that Q1 margins might be (at their) bottom, we don't believe that will necessarily be the case, particularly given our expectation that further cuts are likely," Bernstein analysts said in a note.

The company on Friday slashed prices in Europe, Israel and Singapore. In the United States, Tesla has cut the price of its base Model 3 by a cumulative 11% since the start of the year, with a 20% reduction in its base Model Y.

Even as consumers have dialed down non-essential spending over fears of a possible recession, pressuring the EV market, Tesla's rivals such as Ford Motor Co have stepped up competition at home. Meanwhile in China, Tesla's second-largest market, the company is playing catch up with BYD Co.

Tesla faced trouble at its Shanghai factory on Monday, after employees were informed about the company's plans to cut their performance bonuses, which are linked to the factory's performance, according to online posts and workers.

The company, led by billionaire Elon Musk, has said a ramp up in production at its factories in Austin, Texas and Berlin would help improve margins due to economies of scale.

Tesla is also likely to benefit from a plunge in lithium prices this year, especially in China, where a slump in demand for EVs has left stocks of the metal piling up.

"It's probable that Tesla's margins will be preserved based on the reduction in commodity costs," said George Gianarikas, analyst at Canaccord Genuity.

Tesla is targeting deliveries of 1.8 million vehicles this year, though Musk said in January the automaker could hand out 2 million vehicles if circumstances are favorable.

How EV prices stack up against Tesla's cars, https://www.reuters.com/graphics/TESLA-ELECTRIC/STARTUPS/lgpdkxqbjvo/chart.png

(Reporting by Akash Sriram in Bengaluru, Writing by Aditya Soni; Editing by Sayantani Ghosh and Shinjini Ganguli)

By Akash Sriram