Tesla Shares Drop as Company Reports Weaker Margins

Tesla (TSLA) Shares were set to open weaker on Thursday as the company’s earnings disappoint many.

TSLA – Daily Chart

TSLA – Daily Chart

TSLA posted a 2% loss on Wednesday ahead of the aftermarket earnings. The stock was set to open 8% lower after the premarket trading. The stock will open at support around the $166.30 level, but there is a risk that it will break that level and move lower. 

Tesla cut prices on Tuesday for a sixth time as the company looks to protect its market share and squeeze its rivals. However, that has already affected the bottom line with a drop in margins below the 20% level. 

Earnings showed an eight percentage point drop in operating margins, and Elon Musk hinted at further cuts ahead. 

“It’s better to shift a large number of cars at lower margin and harvest that margin in the future as we perfect autonomy,” Musk told analysts. 

He added that the automaker’s orders exceeded production despite the uncertain economic outlook. The company also stuck to its earlier predictions of 1.8 million deliveries.

Tesla is facing a competitive threat in China for the first time, with the local BYD brand seeing five times the growth of Tesla in Q1. However, Tesla said it still expects its margins to remain the highest among the large automakers. 

The company spent $154 million in cash during Q1. However, the figure could have been much worse after booking a $1.6 billion investment gain.

Tesla (TSLA) Stock Prediction

Elon Musk also said that the company expects to start some production of the cybertruck this year before expanding in 2024. The company recently announced the build of a new Shanghai battery plant. However, they will need additional manufacturing capacity to reach this year’s 1.8 million production goal.

Tesla reported record deliveries in Q1 but has record inventory at $14.38 billion, up from $6.69 billion a year earlier. 

Traders should watch the $166.30 support closely as some weakness below there can open the door to more considerable losses.

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