Tesla stock slumped in the extended trading following the release of disappointing third-quarter results on Wednesday. The electric vehicle (EV) giant failed to meet analysts’ expectations, with several factors contributing to the dismal performance, chiefly an ongoing price war that has severely impacted profit margins.
Tesla (NASDAQ: TSLA) reported a 9% increase in third-quarter revenue, reaching $23.35 billion, while adjusted earnings plummeted by 37% to 66 cents per share. These figures fell short of the predictions of analysts surveyed by Visible Alpha, who had anticipated revenue of $24.3 billion and adjusted EPS of 73 cents.
The company cited several factors contributing to its lackluster profitability, including a decline in the average selling price of its vehicles, adverse foreign exchange effects, and mounting operating expenses linked to projects such as the Cybertruck, artificial intelligence, and other research and development initiatives.
Operating income suffered a significant blow, plummeting 52% from the previous year to $1.76 billion in the third quarter. Meanwhile, operating expenses soared by 43% over the same period, leading to a sharp decline in Tesla’s operating margin, which now stands at 7.6 compared to 17.2% in Q3 of 2022.
The ongoing price war and fierce competition have taken a toll on Tesla’s margins, with the company frequently reducing prices on its models in response to weak domestic demand and rising competition from Chinese electric vehicle manufacturers like BYD Co. (BYDDY).
Earlier this month, Tesla reported third-quarter deliveries of 435,000 vehicles, falling short of analysts’ predictions. Production for the period fell from 480,000 in the second quarter to about 430,000. The company has stated that the decline in production was due to planned downtimes for factory upgrades, raising concerns about its ability to meet the annual target of delivering 1.8 million vehicles. To reach this target, Tesla needs to ship a record 476,000 vehicles in the last three months of the year. Investors are urging Tesla to consider advertising to meet delivery goals, a strategy the company has historically avoided.
The ongoing price war in the electric vehicle industry benefits consumers and led to an industry-wide record of 300,000 vehicles sold in the U.S. in the third quarter. However, it is taking a toll on Tesla’s market share. The company now controls 50% of the market, marking its lowest-ever market share, down from 62% in the first quarter.
The stock market reacted swiftly to these alarming developments, with Tesla stock plummeting by over 4% to $232.40 during post-market trading on Wednesday. Tesla stock has gained 10% over the past year but remains well below its 2021 high of over $400.