Tesla sales tail off as credit shrinks, Model 3 goes abroad

Tesla's sales model may be a consumer test

SAN FRANCISCO — Tesla Inc. reported a drop-off in deliveries in the first quarter after U.S. incentives for its vehicles shrank and the company struggled to quickly get Model 3 sedans to overseas consumers.

The electric-car maker delivered 63,000 vehicles in the three months that ended in March, according to a statement Wednesday, down from 90,966 in the fourth quarter. The 50,900 Model 3 sedans Tesla delivered in the first quarter missed analysts’ average estimate for 51,750 and was lower than the totals in each of the two previous quarters.

“It’s a disappointment. There’s no way around that,” said Gene Munster, a managing partner of venture capital firm Loup Ventures. “They missed on deliveries and they missed on production. The big question is, what is demand? If you believe what they say, demand in the U.S. isn’t a problem.”

Tesla released the figures after the late trading session Wednesday in New York.

The shares have slumped 12 percent this year amid demand concerns, multiple price cuts, job reductions and a continued exodus of senior executives.

CEO Elon Musk capped the quarter with a tweet referring to the work his delivery teams had done as the “most insane logistics challenge” he’d ever seen. Tesla had a total of 10,600 vehicles in transit at the end of last month as the company started sales of the Model 3 in China and Europe. That’s fewer vehicles than were still making their way to customers at the end of the third quarter.

Shipping cars to customers outside the U.S. was critical toward helping make up slack in demand after the federal tax credit Tesla customers were eligible for was cut in half as of Jan. 1. While this pulled some demand forward into the fourth quarter, the company said orders still outpaced the number of vehicles it was able to deliver in the first three months of this year.

The company had warned shareholders that first-quarter deliveries of the pricier Model S sedan and Model X crossover probably would be lower than a year ago because customers rushed to buy in time for the full $7,500 incentive.

Several Wall Street analysts cut their delivery estimates as the quarter came to an end, citing likely pullback in the U.S. after the full tax credit expired and delays getting Model 3 cars to delivered to overseas customers. Musk also cautioned on Tesla’s Jan. 30 earnings call that seasonality would come into play in the first quarter, with auto sales tending to be lowest in January and February and picking up in March.

Price point issues

Tesla’s debut of a long-promised $35,000 version of the Model 3 during the quarter was overshadowed by announcements of significant cost cuts Musk said were necessary for the company to be able to offer the car at that price point.

First, the CEO said in January the company would cut about 7 percent of headcount — more than 3,000 jobs. At the end of February, Tesla paired its Feb. 28 announcement of the base Model 3 and price cuts across its lineup with a plan to close all but a small number of stores, shift all ordering online and dismiss an untold number of sales and marketing personnel.

The moves blindsided some staff, and the company backtracked just 10 days later, saying roughly half of the locations it was planning to close would stay open. The company gave customers until March 18 to order before it said it would raise vehicle prices by about 3 percent, then extended that deadline by several days citing an “unusually high volume” of orders to process.

The attempt to drastically change its retail strategy and multiple rounds of job cuts paired with the introduction of the Model Y crossover last month to revive concerns about Tesla’s cash balance. The company immediately began taking $2,500 pre-orders for the model that isn’t scheduled to start deliveries until the fall of 2020.

Tesla ended last year with about $3.7 billion of cash and equivalents, but had to pay off a $920 million convertible bond in February. While Musk warned the company probably would lose money last quarter, and the carmaker has a $566 million note coming due in November, Tesla has said it has enough money to pay off debt obligations with cash flow.

“Because of the lower than expected delivery volumes and several pricing adjustments, we expect Q1 net income to be negatively impacted,” Tesla said in its deliveries statement. “Even so, we ended the quarter with sufficient cash on hand.”

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