Tesla Record Deliveries Miss Street Estimates As Production Outpaces Demand

Steep price cuts helped Tesla to a record quarterly delivery total, but didn't push demand past its rising levels of production.

Tesla  (TSLA) - Get Free Report posted softer-than-expected first quarter deliveries, the carmaker detailed Sunday, with production outpacing demand despite a series of price cuts put in place earlier this year. 

Tesla delivered a record 422,875 new cars over the three months ending in March, the company said in a statement, up 36.4% from last year and 4.3% north of the 405,278 tally reached over the three months ending in December. Analysts forecast for deliveries ranged from between 420,000 to around 440,000, with with Refinitv pegging the March quarter target at 430,000.

Tesla delivered 412,180 units of its Model 3 and Model Y, as well as 10,695 units of its higher-priced Model S and Model X, the report indicated.

Production rose 44.5% to 440,808 vehicles as supply chain disruptions and Covid-related closures at its Shanghai factory faded. Model 3/Y production was pegged at 421,371 units with Model S/X production at 19,437 units.

"The Model Y/3 price cuts implemented early in 2023 have paid major dividends for Musk & Co. as demand appears very solid despite an uncertain macro," said Wedbush analyst Dan Ives, who carries an 'outperform' rating with a $225 price target on Tesla. "We believe China consumer demand improved during the quarter for Tesla and was key to the company exceeding the Street's bogey for the March quarter."

"The big question will be margins as cutting prices will have an impact on this front although we believe Auto (gross margin) north of 20% remains the key threshold over the coming quarters," he added.

Tesla shares closed at $207.46 each Friday on the Nasdaq, after rising 6.24% on the session to extend the stock's year-to-date gain to around 60%.

Short interest in Tesla shares remains elevated, however, with bets against the group pegged at around $16.42 billion, according to recent data from S3 Partners. The figure represents around 3.3% of the group's shares outstanding.  

Tesla reduced the starting price of its Model 3 sedan by around 13.5% in China, according to data from its website. It lowered the price of its Model Y by around 10% to 259,900 yuan, the equivalent of around $37,660, as it dealt with increasing competition from China-based rivals in the world's biggest car market.

That's an important development for Tesla investors, who are looking to assess the impact of a series of price cuts on overall profit margins. They'll find solace in the fact that lower selling costs will boost demand bring the group closer to its stated 1.8 million target. And they can take heart from CEO Elon Musk's suggestion that 2023 sales could reach 2 million "if it's a smooth year ... without some big supply chain interruption or massive problem."

But apart from falling short of its own delivery targets, Tesla is also finding that demand-focused price cuts are eating into its profit, with automotive gross-profit margins narrowing to 25.9% over the three months ended in December.

That's the lowest in two years and a narrowing from the 27.9% figure recorded over the third quarter.

Musk put the margin pressures down to battery-production costs, the ramp up of factories in Berlin and Texas, higher commodity costs and price cuts.

"Price really matters for EV sales," Musk told investors on a conference call after the company's earnings report. "Our price cuts will make a difference to the average consumer looking to buy a Tesla. Our goal is to make our cars as affordable as possible."

The group will publish its first quarter earnings on April 19, after the market closes.