Tesla Raises Prices After Margin Concern Hammers Shares

Model S and Model X Hiked 3%, Still 23% Below Last Year

Model S Tesla

Justin Sullivan / Staff / Getty Images

Tesla Inc. (TSLA) raised U.S. prices for its Model S and Model X cars, a reversal that followed six rounds of cuts, as lower prices and higher commodity costs dented first quarter margins and worried investors.

Key Takeaways

  • Tesla raises the price of its premium Model S and X by up to 3%.
  • The company moved to shore up a 38% sales slump for the models in Q1.
  • Investors dumped the stock on Wednesday after disappointing earnings.

Model S and Model X premium vehicles will now cost $2,500 more, although they're still as much as 23% cheaper than at the start of the year.

Tesla has been slashing prices globally to drive sales with a focus on Model Y and Model 3. The automaker premiums after sales slumped 36% in the first quarter. The decline came even after record deliveries in the same period.

Tesla shares fell about 10% on Thursday after the company said in its first-quarter earnings report that its gross margins fell to 19.3%, a two-year low that missed analysts' expectations.

Musk told analysts on an earnings call this week that the company is happy to sacrifice margins for sales. Even though the price of key battery components such as Cobalt and Lithium have fallen by about half this year, Tesla isn't likely to find margin relief anytime as predetermined contracts ensure a lag.

CFO Zachary Kinghorn said that the materials price slump will help only in the second half of the year. Tesla was "still kind of at the maximum of pain for commodities in our cost structure," Kinghorn said.

Truist analyst William Stein cut his recommendation on Tesla shares to hold from buy, noting Musk's "brazen willingness" to accept lower margins in pursuit of autonomous driving.

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  1. Bloomberg. "Tesla Increases Prices of its Model S,X".

  2. Tesla. "Tesla Q1 2023 Financial Results and Q&A Webcast."

  3. Reuters. "Tesla Cost Pain Will Last into H2".

  4. CNBC. "Truist Downgrades Tesla due to Margins".

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