Tesla's Balloon Bursts in Q1; Deliveries Impress No One

Following a rocky first quarter of 2019, Tesla’s decidedly lackluster production and delivery report sent the automaker’s stock tumbling in pre-market trading.

Not only were analyst estimates missed, in some cases by a mile, production actually fell at Tesla’s Fremont, California assembly plant, sparking concern that demand is drying up for the company’s EV offerings. A dip back into the red — something CEO Elon Musk warned of, not long after predicting the opposite — seems unavoidable.

While the roughly 63,000 vehicles Tesla delivered in the first quarter represents a 110 percent uptick from a year earlier, it was a 31 percent drop from the previous quarter. Analysts were expecting 76,000 deliveries.

The company’s stock tumbled more than 10 percent following the report’s release.

Tesla blames the dismal numbers on the difficulty in getting cars to new markets like Europe, as well as China. “This caused a large number of vehicle deliveries to shift to the second quarter,” the company said in a statement. “At the end of the first quarter, approximately 10,600 vehicles were in transit to customers globally.”

Even factoring in those oceangoing vehicles, the total still trails the previous quarter’s deliveries. Total production last quarter was 77,100 vehicles — 62,950 Model 3 and 14,150 Model S and X. Q4 2018 figures totalled 86,555 vehicles (61,394 Model 3; 25,161 Model S/X).

Spend two seconds on Markets Twitter and you’ll inevitably see sleuthy images of dusty U.S. parking lots stocked full of new Tesla builds. While all of those stashed cars could be proof of declining demand for certain models, reduced production figures are harder to ignore. And analysts are having a hard time ignoring it.

“It’s a disappointment. There’s no way around that,” said Gene Munster (per Bloomberg), a managing partner of venture capital firm Loup Ventures. “The big question is, what is demand?”

Tesla’s star, the Model 3, saw 50,900 deliveries last quarter, which is at least in the ballpark of analysts’ average estimate of 51,750. The previous quarter? 63,150 Model 3 deliveries.

Model 3 aside, deliveries for the older (and pricier) Model S and X were the worst since Q3 2015. Joseph Spak of RBC Capital Markets said in a note that the decline in Model S and X sales stands to see Tesla lose out on $1 billion in revenue.

“To us, this signals that the tax subsidy cut in the U.S. was a significant hit to these premium vehicles and/or Model 3 is having a bigger cannibalization impact,” he said.

At the dawn of the new year, Tesla’s $7,500 federal tax credit dropped by 50 percent due to the automaker hitting the 200,000-vehicle cap two quarters earlier. The company’s volume model carries a lower price than the Model S and X, increasing the chances of a reduced incentive swaying buyers away. While Tesla tried to compensate for the incentive loss with two price cuts, a disjointed (and partially aborted) plan to drop its retail stores and bring sales online forced the company into a price hike.

First-quarter income will be “be negatively impacted,” Tesla stated, blaming the outlook on “lower than expected delivery volumes and several pricing adjustments.”

Still, the company reaffirmed its forecast of 360,000 to 400,000 vehicle deliveries in 2019, adding that it ended the quarter with “sufficient cash on hand.”

Cowen analyst Jeff Osborn stated the obvious in a note to investors, claiming, “Tesla continues to struggle as a ‘real car company.'” Others took a long view, with Bernstein analyst Toni Sacconaghi writing that Tesla’s Q1 slump was not totally surprising, and that the company has made huge inroads in the mid-priced sedan market. (The average selling price of a Model 3 last year was $57,000, FactSet claimed, per CNBC.)

To Wedbush analyst Dan Ives, the quarter counts as an “air pocket.”

[Image: Tesla]