Tesla reported a modest 4% increase in sales in the first quarter compared with the last three months of last year, despite a series of price cuts on its cheapest vehicles and talks from CEO Elon Musk about strong demand for these lower prices.
The first quarter also marked the fourth straight quarter that Tesla produced more vehicles than it delivered to customers. Part of that could be due to increased production at two new plants, one in Texas and one in Germany, which opened last spring, and a delay between increased production and sales.
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Tesla said there has been an increase in the number of its most expensive models, the Model S and Model X, in transit to Europe, the Middle East and Africa, as well as the Asia-Pacific region.
But that means that over the past 12 months, Tesla has produced 78,000 more cars than it sold, suggesting that talk of strong demand from Tesla executives may not be supported by the numbers. That excess production of 78,000 vehicles is equal to 5% of the cars it built. First quarter sales trailed production by 18,000 vehicles, less than the difference in the third and fourth quarters of last year, but still equal to 4% of vehicles produced.
“At the beginning of this year, we had a price adjustment. After that, we actually generated huge demand, more than we can actually produce,” said Tom Zhu, Tesla executive in charge of global production and sales, at Tesla’s “investor day”.
“And as Elon said, as long as you offer a product with value at an affordable price, you don’t have to worry about demand.”
But some analysts said the hard numbers reported on Sunday raise questions about the strength of demand for Tesla, no matter how upbeat Zhu and Musk’s comments are.
“If it wasn’t clear before, it is now, Tesla has a demand problem,” Gordon Johnson, an analyst who is one of Tesla’s biggest critics, said in a note on Monday.
“For four consecutive quarters, Tesla has produced more cars than it has sold, despite the fact that two of its factories are operating at 20% to 40% utilization, and it closed its largest factory, unexpectedly, three times in the first quarter,” said Johnson, who said he believes Musk has a “pathological problem with the truth.”
“In short, no matter what Elon Musk says, Tesla has a serious/major demand problem,” Johnson said.
The company said it completed sales of 422,875 vehicles in the quarter. That’s short of the forecast of 430,000 vehicles from analysts polled by Refinitiv. Dan Ives, a technology analyst at Wedbush Securities, said the consensus Wall Street was looking for was deliveries of 421,500, which would mean a very close hit for Tesla.
But even Ives, a Tesla stock bull, said the lower prices Tesla got for cars in the quarter will mean tighter profit margins going forward. Tesla will report full first-quarter financial results on April 19.
“The big issue will be margins as the price cut will have an impact on this front,” he said in a note to clients on Sunday.
Q1 production was up just 0.2% from the last three months of 2022, despite efforts to increase production in Germany and Texas.
Production and sales grew much more when compared to the first quarter of 2022, with production up 44% and deliveries up 36%. But even that suggests Tesla is missing the 50% annual growth target it has set for the long-term company.
Tesla shares, which fell 65% in 2022 in their worst annual performance ever, closed Friday up 68% so far in 2023. Still, that left the stock 41% below where it was in the end of 2021. Stocks are down more than 5% in Monday’s midday trading on the sales report.
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