On Tesla’s Q1 2023 earnings call, CEO Elon Musk reassured its investors that Tesla’s margins remain one of the healthiest in the industry. However, despite having delivered a record 4,22,875 units in Q1 2023, Tesla’s net income dropped by 24 per cent to $2.5 billion, with the sole reason being price cuts.
Tesla has had as many as 6 price cuts this year alone, and on the call, Musk informed Tesla’s investors that the company could reduce the profit margins even further, in order to achieve a higher sales volume. "We've taken the view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin," Musk said, according to Automotive News.
According to Insider, Musk said that “Tesla is in a uniquely strong strategic position because we're the only ones making cars that technically we could sell for zero profit for now and then yield actually tremendous economics in the future through autonomy. No one else can do that. Not sure how many of you will appreciate the profundity of what I've just said, but it is extremely significant.” He added that it's “better to ship a large number of cars at a lower margin, and subsequently harvest that margin in the future as we perfect autonomy.”
While Tesla aims to ramp up its output and targets a global production of 1.8 million to 2 million units this year - up from 1.4 million last year - it is also playing a tricky game of balancing the brand prestige, along with the growing volume. But the growing number of Tesla cars on global streets will play in the company’s favour by the time it perfects its autonomous driving technology. Once the autonomous tech is ready to be rolled out, Tesla could sell the same to the existing owners yielding a profit, and a higher number of cars on the street will directly benefit the company’s income from the autonomous tech.
