Tesla first quarter deliveries plummet

Deliveries by Elon Musk’s Tesla plunged 31pc as the electric car maker strained to ship its Model 3 overseas.

The Tesla Model 3.

Tesla said new-vehicle deliveries in the first quarter fell 31 per cent from the previous three months as the electric car maker strained to ship its Model 3 compact car to Europe and China for the first time.

The Silicon Valley automaker Wednesday said it delivered about 63,000 vehicles in the latest period, worse than analysts’ already-lowered expectations. Analysts on average had predicted deliveries would drop to 73,500, according to FactSet, a figure reflecting total deliveries of Model 3, Model S and Model X vehicles.

Concerns of a slow start to deliveries in 2019 — Tesla books its sales when a car is delivered — have raised questions about the company’s ability to meet ambitious sales targets after it struggled for nearly two years to increase production of the Model 3, its lowest-price vehicle. Tesla had slashed the Model 3’s starting price three times during the quarter, finally reaching its long-promised base of $US35,000 ($49,000), suggesting to some analysts that demand for more-expensive versions had plateaued.

Last quarter was Tesla’s first sales period following the phase-out of US tax credits went into effect, dropping to $US3,750 from $US7,500 for buyers. The credits end at the beginning of next year.

Tesla attributed the slowdown to challenges associated with taking the Model 3 overseas for the first time, noting it had only delivered half of the entire quarter’s vehicles 10 days before the period ended. The company cautioned that lower-than-expected sales volumes along with several price cuts would negatively affect first-quarter income. It said it planned to end the quarter with “sufficient cash on hand.”

Joseph Spak, an analyst for RBC Capital Markets, said in a note that Tesla’s explanation for the declines blamed on Europe and China “speaks to the lack of planning and foresight that remains at the company.”

David Whiston, an analyst at Morningstar Research Services, said the Model 3 “should bounce back in Q2 if the transition challenges to delivering in Europe and China are behind them.”

Tesla said it delivered 50,900 Model 3 cars in the first quarter, down 20 per cent from 63,359 the preceding three months. Analysts had expected 54,600 in the latest quarter. Sales of the more-expensive Model S car and Model X sport-utility vehicle collectively fell to 12,100 from 27,602 during the fourth quarter.

The Model 3 represents chief executive Elon Musk’s bet that he can turn Tesla into a more mainstream automaker from a niche luxury player.

Tesla CEO Elon Musk. Picture: AFP

It wasn’t until the final week of June that Tesla began to hit its stride in building the Model 3 at a consistent pace near what he had long predicted.

But getting the Model 3 to customers has bedevilled the company ever since it cranked up production. As Tesla’s US sales approach those of luxury brands like BMW AG and Daimler AG’s Mercedes-Benz, the company has encountered a host of logistic issues, from delivery and servicing of a growing fleet to balancing supply and demand.

The delivery challenge was especially pronounced in the first quarter, when Tesla began delivering the Model 3 overseas.

Tesla has one assembly factory, located in Fremont, Calif. It traditionally dedicates the early parts of each quarter to shipping vehicles overseas to account for travel time.

Tesla had cautioned its results would be affected by taking the Model 3 overseas for the first time. The company has already begun construction on a factory in China to build the Model 3 and future Model Y compact-SUV for that market, and Mr Musk has said the company intends to open an assembly plant in Europe. The challenge for Tesla is balancing the costs of ambitious growth plans with maintaining profitability.

Tesla went into the final days of March with a broad push to deliver the Model 3. In a companywide email, reported earlier by Business Insider, Mr Musk urged employees to focus on deliveries, noting that sharply rising orders in Europe and China, similar to the increase in North America last year, were posing new fulfilment challenges. Shortages of Europe-specific parts and a printing error that had recently been resolved in China, he said, were making it harder to get vehicles to customers.

In January, Tesla said it expected deliveries of the Model 3 to be 10,000 fewer than it would make during the quarter. Tesla on Wednesday said it made 62,950 Model 3 sedans in the quarter, compared with the 61,394 made in the three months ended Dec. 31. Tesla built 77,100 vehicles in the period — an 11 per cent decline from the fourth quarter.

The company said it had 10,600 vehicles in transit at the end of the quarter that will count as sales during this delivery period. Tesla had almost 3000 vehicles in transit at the end of the fourth quarter.

Without giving any specific country figures, Tesla said orders for the Model 3 in the US outpaced deliveries in the period. The company said inventory of the vehicle in North America remains exceptionally low at a two-week supply.

Mr Musk’s varied statements on Tesla’s 2019 outlook have stirred controversy. In January, he told shareholders in a letter that Tesla expected to deliver between 360,000 and 400,000 vehicles this year. During a conference call shortly after releasing the letter, he suggested that total might be higher, saying demand for the Model 3 could range between 350,000 and 500,000 this year.

A few weeks later on Twitter, Mr Musk predicted making 500,000 vehicles this year, then later clarified that he meant an annualised production rate of 10,000 cars a week by year’s end.

US regulators point to those tweets as violating a settlement he made with the Securities and Exchange Commission to have his messages vetted before publication. The two sides are set to appear before a judge later this week.

Brian Johnson, an analyst for Barclays, has noted that the difference between the low and high ranges for the year given at various points by Mr Musk during the quarter could amount to a revenue swing of $US10 billion and a difference of $US8 billion in inventory built.

On Wednesday, Tesla also reiterated that it plans to deliver between 360,000 and 400,000 vehicles this year.

Dow Jones Newswires