Tesla Faces Margin Pressure as EV Price War Heats Up

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Tesla, the world's most valuable automaker, is expected to report a more than three-year low in its first-quarter margins as it slashed prices five times between January and April to lure more buyers in the face of rising competition and a weak economy. The electric vehicle (EV) maker is predicted to have an auto gross margin of 23.2% for the quarter, according to Visible Alpha's poll of 17 analysts. This is down from a record 32.9% a year earlier and the lowest since the fourth quarter of 2019. Tesla finance chief Zachary Kirkhorn promised in January that margins would not fall below 20%, and analysts predict further price cuts and margin pressure.

In the US, Tesla cut the price of its base Model 3 by a cumulative 11% since the start of the year, with a 20% reduction in its base Model Y. The company also slashed prices in Europe, Israel and Singapore last week. Meanwhile, Tesla's rivals such as Ford Motor Co have stepped up competition at home, and in China, the company's second-largest market, Tesla is playing catch up with BYD Co.

Despite the economic downturn that has seen consumers dial down non-essential spending, Tesla has maintained its lead in the US EV market, commanding over half of it. The company is targeting deliveries of 1.8 million vehicles this year, although Elon Musk has said it could hand out 2 million vehicles if circumstances are favorable. Tesla is also expected to benefit from a plunge in lithium prices this year, particularly in China, where a slump in demand for EVs has left stocks of the metal piling up.

Tesla's margin pressure could be alleviated with its ramp up in production at its factories in Austin, Texas and Berlin, which would help improve margins due to economies of scale. However, the company faced trouble at its Shanghai factory on Monday after employees were informed about the company's plans to cut their performance bonuses, which are linked to the factory's performance. According to online posts and workers, this has sparked tensions between Tesla and its staff.

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