Tesla shares dip as it cuts prices amid demand fears
No sooner did Elon Musk put a raucous 2018 behind him than a new worry erupted for Tesla: a potential ceiling in demand for its cars.
Tesla's shares plunged on the first day of 2019 trading after the company unexpectedly announced it was cutting prices by $2,000.
The move, designed to partially offset a reduction in the US federal tax credit for its electric vehicles, underscored the key challenge in what is likely to be a pivotal year for the firm and its CEO. The carmaker also said fourth-quarter deliveries fell short of analysts' estimates.
The 63,150 Model 3s handed over to customers trailed the roughly 63,700 average analyst projection.
Tesla said more than three-quarters of orders in the final three months were from new customers, rather than reservation holders. That suggests many consumers are still waiting to buy versions of the vehicle at the long-promised $35,000 sticker price.
"This was a good quarter in terms of production ramp and strong underlying demand, but Tesla came up shy of bull expectations and this will be the focus of the street," Daniel Ives, an analyst at Wedbush Securities, said.
Tesla shares fell as much as 10pc to $298.80 as of 10.30am in New York. The stock advanced 6.9pc last year while most other car manufacturers dropped. The electric-car maker's 5.3pc junk bonds due in 2025 were the biggest decliners in the market yesterday morning. The bonds slipped two cents on the dollar to 85.5 cents, the largest drop since September.
It'll be a few more weeks before Tesla confirms whether it was profitable for a second consecutive quarter.
But the company's ability to sustain a higher level of production - it built 61,394 Model 3s and 86,555 vehicles total in the last three months - will go a long way toward that goal.
Musk said back in October that Tesla turning its attention to filling Model 3 orders in Europe and China early this year would help pick up any slack in demand once US buyers lose the full $7,500 federal tax credit.
But customers in those markets still have several weeks to wait, with the company now saying those deliveries will start in February.
Tesla fell just short of its target to deliver 100,000 of its more expensive Model S and Model X vehicles for the year, selling 99,394 units.
Still, James Albertine, an analyst at Consumer Edge Research, said yesterday's selloff represented an overreaction.
"The optics of this decision are weighing on shares, which is not surprising," Mr Albertine, who has the equivalent of a hold rating on Tesla shares, wrote in a note to clients. "To us, demand is not an issue, nor is EV competition to this point."