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Toyota Earnings May Show a Flaw in Tesla’s Pricing Strategy

by Hataf Finance
8 minutes read

A shift in third-quarter data from



Toyota Motor

show a potential flaw in Elon Musk’s battery-electric-vehicle pricing strategy.

Toyota Motor (ticker: TM) now tops a key stat for global auto makers. A year ago, Tesla (TSLA) held the first position on another important ranking while Toyota was trailing. Now the global BEV leader is below average compared with global peers.

Wednesday, Toyota reported a third-quarter operating profit of about $9.5 billion, about 25% better than analysts had expected, according to FactSet, and up from $3.8 billion a year ago.

Toyota stock closed with a gain of 4.7% in overseas trading. U.S.-listed American depositary receipts were up 5.7% in early trading Wednesday while the

S&P 500


Dow Jones Industrial Average

were up 0.5% and 0.3%, respectively.

For the quarter, Toyota’s operating profit margin came in at about 12.6%, up from 6.1% a year ago. That’s among the best in global auto makers that have reported third-quarter numbers. Toyota’s $9.5 billion operating profit is number one.

in the year-ago third quarter, Tesla had the best operating profit margin, about 17.2%. However, significant price cuts have eaten away at profitability. Tesla’s third-quarter 2023 operating profit margin was about 7.6%, more than halved from the year-ago period.

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Tesla generated $3.7 billion operating profit in the 2022 third quarter, about 13% of the total operating profit of a handful of global auto makers while accounting for about 7% of total sales.

In 2023’s third quarter, Tesla generated only about 5% of the group’s operating profit while accounting for about 6% of the total sales; meanwhile Toyota accounted for 27% of the group’s operating profit while generating 21% of the sales.

The reversals show a couple of things. For starters, auto production is a scale business. Volumes at Toyota improved about 13% year over year. That means more units through the same number of plants built by a similar number of employees. That dynamic helps profit margin.

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Tesla sold more cars, too, but prices of key models fell by as much as 25% year over year. That’s hard to overcome by selling more. Also, Tesla is ramping up production at new plants that aren’t running at full capacity. Tesla isn’t getting all the benefits of its higher manufacturing capacity yet.

With sales up at Toyota without any material price cutting, it’s possible that Tesla didn’t need to cut prices as severely as the company did to grow production and sales volumes.

In any case, Tesla has grown much faster than Toyota over the past couple of quarters. Tesla has shipped about 900,000 units over the past two quarters, up more than 50% year over year. Toyota has grown volumes by 14% over the same span.

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To some extent, Tesla cut prices aggressively because it had more metal to move. Tesla vehicles, on average, are also more expensive than Toyota vehicles. Tesla’s sales divided by unit shipments in the third quarter amounted to about $54,000 each; the number for Toyota is about $31,000.

The debate will continue on whether Tesla needed to cut prices as deeply as it did, but investors likely agree they’d like to see the price cuts stop.

Write to Al Root at allen.root@dowjones.com

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