Tesla Q1 - Price Cuts Lowers Profits

You should not invest in Tesla if you can't handle asset price volatility. It's a high risk holding, run by a crazy genius who is changing the world. I just wanted to say that upfront.

Tesla reported quarterly numbers of Wednesday night which underwhelmed the market, and the share price closed down 9.7% yesterday. The biggest issue was a significant drop in gross profit margins, from 29% down to 19%, driven by multiple vehicle price cuts this year. Tesla delivered 36% more cars, which resulted in only a 24% increase in revenue and worse still, 24% less profit than a year ago.

Tesla has been cutting prices to make cars more affordable, speed up EV sales, and maintain their market share. They've been able to bring production costs down sharply, which helps to buffer the impact of the lower vehicle selling prices.

Of the $23 billion in revenue, $1.5 billion came from the energy and storage division, which grew by 148% compared to last year. Tesla needs this division to continue scale up rapidly and become a more meaningful part of the company.

Goldman Sachs thinks that Tesla is fairly-valued at current prices, on a forward PE of 38 times expected 2025 earnings. They note the potential of side businesses like self-driving technology and fees from charging stations.

There is no doubt that renewable energy and electric powered mobility will be a big part of the global economy in decades to come. This is an exciting company for the future.