In the first months of 2019, there were many warning signs that everything was not good at Tesla (NASDAQ: TSLA) . The electric vehicle spy implemented a number of price changes – mainly reduced prices – and began taking orders for the anticipated $ 35,000 basic version of Model 3, which suggested a growing desperation to boost sales.
Nevertheless, there was no firm evidence that Tesla had trouble selling their cars – until now.
On Wednesday, Tesla reported horrible production and deliveries in total for the first quarter. It appears to be clearer that the model 3 demand does not live up to high expectations, while sales of the price-friendly model S and model X are in free fall.
Model 3 demand avoids impressing
Tesla built 62,950 model 3's last quarter and delivered 50,900. Both figures represented large increases on an annual basis. In the first quarter of 201[ads1]8, Tesla built fewer than 10,000 Model 3s – and delivered 8,180 of them – as it was still early on to ramp up production.
Having said that, things look at a sequential role of Tesla's Q1 performance in another light. In the fourth quarter of 2018, Tesla built 61,394 Model 3s and delivered 63,150.
The sequential decline in deliveries can mostly be attributed to higher transit stock, as the Tesla shift changed the delivery mix to Europe and China instead of the United States. But even adjusting for the wind blades in question appears that Model 3 production and sales have peaked. The only hope for a return to meaningful growth is that Tesla's move to open a factory in China will make it possible to reduce prices on the important market.
Tesla attempted to give a positive spin on things by saying that Model 3's orders in the US have significantly exceeded deliveries in the first quarter. However, it is not as impressive as it sounds, since the majority of model 3 deliveries went to foreign customers during the first quarter.
InsideEVs estimates that Tesla delivered 22,425 Model 3s in the US last year. (Tesla does not provide an overview of land.) In other words, Tesla's statement may be consistent with receiving only 30,000 model 3 orders in the US during the first quarter. It would be a bad sign for the company, given that it plans to build nearly 100,000 model 3s per quarter at the Fremont, California plant at the turn of the year, and the United States has historically counted the majority of Tesla's sales.
A sales snipe for Model S and Model X
While Model 3 gets most of the headlines these days, Model S and Model X were a large part of Tesla which became profitable in the second half of 2018. Actually gross margin for The expensive models rose to around 30% during that period. As a result, Model S and Model X probably produced about half of Tesla's gross return on the back of the year, despite being less than one-third of their total deliveries.
Unfortunately, Tesla only delivered 12,100 model S and Model X cars last year. It was down from 27,550 a quarter earlier and 21,800 in the first quarter of 2018.
There are a number of possible causes for this sales pressure. Partial phasing out of federal tax credits in the US may have drawn some requirements to 2018. Better availability of model 3 is another factor that can weigh demand for price-sensitive Teslas. Trading tensions can affect sales in China. Increasing competition in the electric car market can certainly not be overlooked. And the latest model Y reveals may cause some potential buyers to wait for that model.
But one thing is for sure. There are no meaningful production restrictions to blame on the sales pitch – it's about demand. The only question is how much Tesla is willing to cut prices (at the expense of lower gross margin) to maintain Model S and Model X sales volumes ahead.
2019 may be a tough year for Tesla
Tesla noted that a significant number of deliveries shifted from the first quarter to the second quarter due to challenges that arose during attempts to dramatically increase delivery in Europe and China. That – along with the initial availability of $ 35,000 model 3 and another decline in the federal tax credit for Tesla purchases on July 1 – should be enough to drive a sequential increase in Model 3 deliveries in the quarter.
getting model s and model x output back to the previous batch of about 25,000 deliveries per quarter will be very challenging. Furthermore, Tesla's plan to raise model 3 production during 2019 seems extremely unrealistic. Falling waiting times indicate that there may not even be enough demand to support today's production rate after Tesla burns through the initial demand for demand in Europe and China.
To make matters worse, Tesla's operational challenges and price reductions, as well as the steep fall in model S and model X demand, will have a serious impact on the company's profitability and cash flow in 2019. Some analysts expect Tesla to burn more than 1 $ 1 billion in cash this year, which would put the balance in a perilous state unless it is able to raise more capital.
Tesla bulls can hope that new products like model Y, Tesla Semi and a future Tesla pickup truck will help turn things around. Nevertheless, when these models arrive in 2020 and beyond, Tesla may be in a much weaker state than it is today – and faces more competition than ever before.