Tesla reported a sharp drop in net profit in the first quarter, despite strong sales growth, as a decision to lower the price of its electric cars to boost demand hit its profitability, writes AFP.

The income of the group under the leadership of Elon Musk increased by 24% to 23.3 billion dollars during the analyzed period. In the quarter, the company delivered 36% more cars.

At the same time, its net profit fell by 24% to 2.5 billion.

To avoid too much of a slowdown in sales due to a slowing economy, rising interest rates that make it more expensive to buy a car, and the introduction of many electric car models, Tesla has decided to lower prices in recent months, both in the U.S. and in China and Europe.

On Wednesday, the company announced new US price cuts for its popular Model 3 and Model Y models.

Tesla has cut costs, but its operating margin, which was 16.8% in 2022, fell to 11.4%. However, it remains much higher than Ford (4% in 2022, according to FactSet) or General Motors (6.6%).

Tesla acknowledges that the price cuts have impacted the profit margin, but believes it remains at a “manageable level.”

The company has also been hit by higher raw material, logistics and warranty costs, as well as costs to ramp up production of the so-called 4680 battery cells. (Photo: Sergiomonti, Dreamstime.com).