Tesla share price dives as profits fall 44%

Driving higher car sales in a weakening economy has taken its toll on Tesla's profit profile.

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The Tesla Inc (NASDAQ: TSLA) share price continued to slide in after-hours trading this morning after results failed to meet expectations.

Breaking a streak starting in 2019, the Elon Musk-led electric vehicle company delivered revenue and earnings below what analysts had outlined leading up to the third-quarter result. The consensus pencilled in a decrease in earnings amid price cuts, just not to the extent reported last night.

Tesla shares slid 4.8% to US$242.68 heading into the result to be announced after the bell. Following the release, the EV company's shares sank a further 4.2% to US$232.37 — carving 8.8% off from the prior closing price.

Why is the Tesla share price falling?

In an environment defined by elevated interest rates and geopolitical tensions, the pressure was on in Q3 to maintain adequate production and delivery volumes. Tesla has pursued further price cuts to maintain demand during subdued consumer spending.

The company's main revenue contributor, automotive revenues, still managed to grow 5% year-on-year to US$19,625 million. Meanwhile, Tesla's smaller segments — energy generation/storage and services revenue — surged 40% and 32%.

However, the cracks from pricing pressure began to appear further down the financial statement.

Gross profits declined 22% to US$4,178 million, shaving the gross margin down to 17.9% from 25.1%. Furthermore, earnings per share (EPS) cratered 44% to 53 US cents, bringing the company's net margin to approximately 8%.

Negative impacts on the EV maker's profitability included:

  • Reduced average selling price due to pricing and mix
  • Higher operating expenses attributable to Cubertruck, AI, and other research and development projects
  • Costs associated with ramping production and idle factories during upgrades
  • Foreign currency exchange impact.

Despite the challenging quarter, Tesla grew its cash pile by US$3 billion to US$26.1 billion. However, only US$0.8 billion of the increase came from the company's free cash flow.

Cybertruck comes with 'enormous challenges'

Tesla's futuristic-looking pickup truck, the Cybertruck, is said to be on track for deliveries this year. Yet, Elon Musk highlighted the difficulty in bringing the unique vehicle to market during the earnings call, provided below.

Addressing listeners, Musk warned of the road ahead for the new vehicle platform, stating:

There will be enormous challenges in reaching volume production with the Cybertruck and then in making the Cybertruck cash flow positive.

This is simply normal. When you have a product with a lot of new technology or any brand-new vehicle program, but especially one as different and advanced as the Cybertruck, you will have problems proportionate to how many new things you're trying to solve at scale.

As it stands, Tesla holds a production capacity of more than 125,000 Cybertrucks at its Texas facility.

The Tesla share price is still up more than 120% in 2023. For context, the Nasdaq Composite Index (NASDAQ: .IXIC) is up a lesser 28% year-to-date.

Motley Fool contributor Mitchell Lawler has positions in Tesla. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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