Tesla Inc. on Wednesday reported an impressive first quarter with solid earnings, fueled by steadily rising prices, demand for electric vehicles and supply chain issues across the auto sector.
Tesla TSLA raised prices for its electric vehicles by -4.96% in March, and it wasn’t an isolated case: pro-Tesla blog Electrek wrote at the time that “Tesla made so many price increases in 2021 that we stopped.” to count”. The result was operating income of $3.6 billion and sales growth of 81% in the first quarter, with Tesla citing higher average selling prices as the main reason for those gains, only behind higher deliveries, in its investor presentation on Wednesday.
“Higher prices continue to have a positive impact on our finances as we make progress on delivering cars in our growing backlog,” Chief Financial Officer Zachary Kirkhorn said at the start of his opening remarks on Wednesday.
For a company that has been operating at a loss for a long time, the profit is even more impressive. However, CEO Elon Musk – who had previously made bringing electric cars to affordable levels a key goal – seemed defensive when discussing the company’s much higher prices.
“It might seem like we might be unreasonable in raising the prices of our vehicles considering we had record profitability this quarter,” he said. “But the waiting list for our vehicles is quite long,” he added, implying that the price will be more reasonable if consumers receive their vehicles in six months to a year.
Musk blamed higher costs for the price hikes, though those certainly didn’t show up on the balance sheet, where Tesla posted record profit margins. Tesla’s operating margin hit 19.2%, more than triple last year’s performance and a healthy jump from 14.7% in the prior period, while auto gross margin topped 30% for the first time without the help of regulatory credit sales.
“In some cases, we’re seeing suppliers requesting 20% to 30% price increases on parts from last year through the end of this year,” Musk said in defense of the increase. “So there is enormous cost pressure. That’s why we’ve increased our prices, because when inflation is so uncertain, which we know is high, and we have orders that sometimes expire a year or more, then we have to expect those cost increases. ”
In that regard, Tesla and Musk are no different from other large companies and executives. In 2021, amid inflation not seen in the US in decades, big companies have achieved profit margins the world has never seen, even as executives publicly fretted over rising labor and commodity costs.
Musk had plenty of excuses and dodges when asked about pricing on Wednesday. When an investor asked about his initial goal of making the Model 3 an affordable electric vehicle that would drive EV adoption, Musk eventually turned to the claim that Tesla’s far-flung robo-taxis would cost less than a subway or bus ticket.
“Robotaxi and autonomy will, I believe, give consumers by far the lowest cost of transportation per mile they have ever experienced,” he said. “It’s really quite substantial.”
Musk claimed that robotic taxis are expected to be produced in 2024, but he also reiterated that Tesla will make it to full self-driving next year — a claim he makes every year that should remind everyone not to trust Musk’s schedules . Musk said he hopes to stop raising prices and eventually lowering them again, but the same doubts are necessary.
The costs could potentially eat into margins later this year. Semiconductors are in short supply, and margins in this area also suggest sharp price increases, as do commodities like lithium, which is used in batteries. While Musk pointed out that lithium ore itself is plentiful, there’s a dearth of companies that can refine lithium ore and turn it into the kind of lithium that can be used in a battery cell.
However, it’s also conceivable that Tesla’s margins could expand even further in the next quarter as recent price hikes take effect for the full period. That would be good for Tesla investors, though Musk will continue to struggle to reconcile the thicker margins with his past rhetoric.