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Tesla Model Y was the best-selling car worldwide in the first quarter

It's also the first time a pure EV topped the global sales rankings.

Tesla (TSLA) scored a huge milestone in the first quarter amid its crusade to ramp up global EV adoption — producing the best-selling car in the world.

But the electric vehicle maker may have paid a big price with lower profit margins.

A new report from data firm JATO Dynamics, along with automotive site Motor.1.com, found the Tesla Model Y was the No. 1 selling vehicle globally in the first quarter of the year, marking the first time an EV was the top-selling vehicle.

JATO said Tesla sold 267,200 Model Ys in Q1, up 69% from a year ago. The second-best-selling car was Toyota’s Corolla, with 256,400 vehicles sold globally. JATO’s data spanned 53 international markets, plus data and forecasts for 31 other markets and estimates for the balance of global markets.

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For Tesla, it could be the beginning of a new sales trend for the Model Y, which might see it being the global leader in sales for 2023.

“It seems that Tesla has the wind in its sails because the Model Y is an SUV and it is electric, a win-win combination at the moment,” JATO industry specialist Felipe Munoz said in the report published on Motor1.com. “On the other hand, the Corolla has the advantage of being a truly global product, being available in almost every country in the world. This makes it less vulnerable to any geopolitical clashes between China and the United States, for example.”

Drilling deeper into the data, JATO found that China accounted for 35% of all Model Y sales, with the US close behind at 31%. For those two countries, Model Y sales grew 26% in China and a whopping 68% in the US versus a year ago. The Tesla Model Y was also the top-selling vehicle in the EU.

Of the top 5 selling vehicles, the other four spots are occupied by Toyota vehicles — the Corolla, Hilux pickup, RAV4/Wildlander CUV, and Camry sedan.

Even as Tesla expands its footprint and aims to release a cheaper gen-3 vehicle, the company is paying a cost to grow its Model Y sales.

Tesla instituted a number of price cuts in the US, Asia, and some European markets in Q1 of this year; in its earnings statement, the company reported gross margins dipped to 19.3%, reflecting the costs of those price cuts.

According to data compiled by Yahoo Finance, Tesla’s Model Y Long Range started the year with a $65,990 MSRP. The version now has a starting price of $50,490, a drop of $15,500, or 23.4% from the start of the year.

While a decrease in gross margins is a significant worry for investors, CEO Elon Musk says he isn’t concerned, because it’s all part of his vision for the company.

Tesla US Model Y order page as of 5/30/2023
Tesla US Model Y order page as of 5/30/2023 (Tesla.com)

“We've taken a view that pushing for higher volumes and a larger fleet is the right choice here versus a lower volume and higher margin,” Musk said during the company’s Q1 earnings call.

Musk believes the company, over time, will be able to generate significant profit through services like FSD (full-self driving) and autopilot autonomy services. “We do believe we're like laying the groundwork here, and that it's better to ship a large number of cars at a lower margin, and subsequently, harvest that margin in the future as we perfect autonomy,” he said.

Tesla investors and automotive industry experts will be keen to see if the trend of rising Model Y sales continues in Q2 with the federal EV tax credit available for the entire quarter in the US. However, the company may face some headwinds in China due to recent macroeconomic weakness.

Pras Subramanian is a reporter for Yahoo Finance. You can follow him on Twitter and on Instagram.

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