Significant price reductions have caused Tesla’s profit to fall sharply at the beginning of the year, despite a jump in sales. The bottom line is that star entrepreneur Elon Musk’s electric car maker earned $2.5 billion (2.3 billion euros) in the three months to the end of March, 24 percent less than a year ago.

Tesla announced this yesterday after the US stock market closed. Revenue grew 24 percent to $23.3 billion. Analysts had expected a little more. The stock fell nearly 4 percent in after-hours trading. Since the beginning of the year, the price had risen by almost 50 percent.

Tesla delivered 422,875 electric cars in the first quarter. The company thus equaled its previous record, but fell short of expectations. Musk boosted sales with heavy discounts, and there have already been several rounds of price cuts this year. Profitability is suffering as a result – Tesla’s operating profit margin fell from 16.0 to 11.4 percent quarter-on-quarter. A year ago it was still 19.2 percent. Tesla is still way ahead in the industry. For comparison: The margins of Ford and General Motors were recently five and seven percent.

Tesla in a difficult phase

Musk justifies the lower prices by wanting to make e-cars affordable for the masses. There is no lack of demand. However, Tesla made about 18,000 more vehicles last quarter than the company shipped. “Tesla is going through a difficult period. Inventories are rising,” commented auto expert Gene Munster of investment firm Deepwater Asset Management. Analysts see Musk’s aggressive pricing policy as a reaction to the increasing competition in the electric car business, which is developing from a niche to a mass market.

In the meantime – not least due to regulatory pressure – almost all established car manufacturers have entered the competition with high investments. In order to stay on course for growth and defend its market leadership, Tesla has little choice but to help out with purchase incentives.

However, according to its own statements, the company assumes that it will retain one of the highest profit margins in the automotive industry in the future, despite the price cuts. Tesla is also sticking to the ambitious goal of expanding production with annual growth rates of 50 percent and believes it is still on course to deliver around 1.8 million cars this year.