Tesla stock drops. Earnings show it’s just an automaker.

Auto gross margins, excluding regulatory credits, came in at less than 16%, down from about 24% in the fourth quarter of 2022. Wall Street was looking for about 21%. It misses by 5 percentage points. Including the car rental business, the auto business generated gross profit margins of about 19%, still below the forecast of 21% and below the 20% that investors had expected. Some analysts model margins excluding credits and leasing, which makes it difficult to say exactly how big the margins should be.

Pricing is the main reason for the low margin. The dealer average price of a vehicle sold, calculated by taking auto sales and dividing by deliveries, was about $44,600, down nearly $10,000 from about $54,400 in the first quarter of 2022. The gross profit margin per vehicle sold was about $6,800. Including leasing, it came to about $8,600. A year ago, that figure was about $15,700.

It’s not a strong showing for the electric car maker. Jesse Cohen, an analyst at Investing.com, called the results disappointing. “With our first-quarter earnings, we are convinced of TSLA’s ability to accelerate revenue growth and expand operating margin,” he said.

Tesla stock is down 3.5% in after-hours trading Wednesday, having already fallen 2% during the regular session. the NASDAQ Composite And

Standard & Poor’s 500

Almost flat finished.

The rest of the quarter looked fine. Tesla reported earnings of 85 cents per share, which met expectations, on sales of $23.33 billion, just below forecasts of $23.67 billion.

Tesla’s so-called other businesses did well, bringing in record total profits of $1.1 billion. Excluding leasing from other companies, the company had a record gross profit of $303 million. Tesla posted 3.9 GWh of battery storage in the quarter, up about 300% year-over-year.

Reported total operating profit came in at $2.7 billion, short of Wall Street’s forecast of $3 billion. Operating profit margins came in at 11.4%, down from 19.2% in the same quarter last year.

Operating profit margins of 11% make Tesla look like a traditional automaker. Fourth quarter operating profit margin came in from Toyota Motor (TM) of approximately 10%.

“In the current macroeconomic environment, we see this year as a unique opportunity for Tesla,” the quarterly report reads. “As many automakers work through challenges with unit economics for their electric vehicle programs, we aim to cement our position as a cost leader.”

Tesla is trying to step on the competition’s throat and is willing to use car prices to do so. Tesla’s problem is that general motors (GM) f Ford Motor (F) They still make a lot of money in their traditional car business. Losses in these companies’ electric vehicle business have yet to be recorded, which means Tesla could take advantage of the cost position early on.

More about Tesla’s pricing strategy will almost certainly come on its earnings conference call Wednesday evening.

Chief Financial Officer Zachary Kirkhorn, on the company’s fourth-quarter call in January, said Tesla could hit auto gross margins by 20% for the full year. Investors will want to see if that is still the goal. His target will probably include the leasing business.

Investors will also want to see if demand remains strong. Tesla’s news release also included the line that it remains “on track with our growing investments.” This could be an endorsement of an expected 1.8 million vehicle deliveries for 2023, but investors will have to wait and see what comes of the call.

One silver lining for investors is that costs are coming down. The car averaged about $37,800 to produce, down from the Q2 2022 peak of $42,700. The type of vehicle required affects both the price and cost calculations, so investors should use the cost calculation as a rough guide only.

The other silver lining is the non-automotive business. Gross margins, excluding leasing, were about 8%, up about 10 percentage points year-over-year.

The bulls will take some solace in that. But for now, Tesla is still mostly a car company. More than 90% of the total profit generated comes from the sale and leasing of cars.

Write to Al Root at [email protected] and Callum Keown at [email protected]