Tesla Says Its Aggressive Price Cuts Will Pay Off In the Long Run

Tesla has lowered the prices of Model 3 and Model Y six times this year.

A Tesla supercharger
Tesla superchargers allow EV drivers to charge their cars faster than regular charging stations. Kent Nishimura / Los Angeles Times via Getty Images

Tesla (TSLA) admitted aggressive price cuts since late last year have put a dent in its profitability, but says it’s all part of the plan. It expects to make money over the long term by reducing the cost of producing electric vehicles and selling expensive service packages, such as its self-driving software and supercharging memberships, the Elon Musk-led company said in an earnings report today (April 19).

In the first months of 2023, Tesla made $23.3 billion in revenue, of which $2.5 billion was profit. The numbers slightly missed Wall Street analysts’ estimates, sending Tesla shares down more than 4 percent in today’s after-hour trading.

Earlier today, Tesla reduced the prices of its Model 3 and Model Y lineups for the sixth time this year. After the cuts, the entry-level Model Y starts at $46,990 and the base Model 3 starts at $39,990, the lowest levels in more than two years.

Tesla’s generous price reductions have sparked worries among investors about the demand for its electric cars and, more importantly, profitability. In today’s earnings report, Tesla said retail price is just one aspect of how it makes money from EVs and there are other profit opportunities “given the potential lifetime value of a Tesla vehicle through autonomy, supercharging, connectivity and service.”

“Although we implemented price reductions on many vehicle models across regions in the first quarter, our operating margins reduced at a manageable rate,” Tesla said. “We expect ongoing cost reduction of our vehicles, including improved production efficiency at our newest factories and lower logistics costs, and remain focused on operating leverage as we scale.”

Tesla offers various service packages to its EV customers, including a $15,000 driver assistant software branded as “Full Self-Driving,” a monthly supercharging membership and an insurance plan. The company is also developing an in-house battery that’s supposed to lower the cost of vehicle production in the long run.

Tesla Says Its Aggressive Price Cuts Will Pay Off In the Long Run