All eyes on Tesla’s margins
The interesting impact of interest rates on automotive gross margins
Shares of Tesla are off this morning in the wake of the company’s Q3 2023 earnings report. TechCrunch covered the company’s aggregate results here.
While Tesla’s results missed street estimates in both revenue and profit terms, there was much to like about the company’s quarter. Revenue was up modestly (9%), with Tesla’s non-automotive revenues (energy, services) growing much more quickly than top line from selling cars, showing the value of somewhat diversified revenue sources.
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And Tesla is still profitable. Despite a decline in its gross profit in the quarter, the company reported $1.85 billion in GAAP net income in the third quarter and free cash flow of $848 million.
So why is the stock selling off and analysts wringing their hands? Tesla has reduced the price of its vehicles in recent quarters. That has helped the company stick to its goal of delivering 1.8 million vehicles this year, but with a lower price point for much of its line, the company is under margin pressure.
As TechCrunch noted Wednesday after Tesla’s numbers first dropped:
Tesla reported gross margin of 17.9% in the third quarter, falling from 25.1% in the same period last year. It’s also down from Q2 when it reported margins of 18.2%.
Where Tesla’s margins are going is not an idle question. The company has enjoyed gross margins far in excess of its major automotive rivals in recent years: