Tesla sales decline nearly 9%, most in 4 years

The latest quarter saw a steep decline in Tesla sales as global competition grew, the rise of electric car sales failed, and price reductions were unable to draw in additional customers.  

According to the Austin, Texas-based company, it delivered 386,810 cars globally between January and March of this year, which is almost 9% less than the 423,000 it sold during the same period the previous year. It was the first quarter sales loss in over four years when compared to the previous year.  

Additionally, sales did not meet even the most pessimistic Wall Street projections. According to a FactSet survey of auto industry analysts, Tesla Inc. was expected to deliver 457,000 vehicles. That is a more than 15% shortfall.  

The company blamed the decline in part on phasing in an updated version of the Model 3 sedan at its Fremont, California, factory, plant shutdowns due to shipping diversions in the Red Sea, and an arson attack that knocked out power to its German factory. 

But TD Cowen Analyst Jeffrey Osborne wrote in a note to investors that weaker March sales indicate that incentives, including discounts and a free trial of “Full Self Driving” software, “did not work as demand deteriorated.” 

Despite the sales decline, Tesla was able to retake its global EV sales crown from China's BYD, which sold just over 300,000 electric vehicles during the quarter, Osborne wrote. 

In its letter to investors in January, Tesla predicted “notably lower” sales growth this year. The letter said Tesla is between two big growth waves, one from global expansion of the Models 3 and Y, and a second coming from the Model 2, a new, smaller and less expensive vehicle with an unknown release date. 

“This was an unmitigated disaster 1Q that is hard to explain away,” wrote Dan Ives, an analyst with Wedbush who has been very bullish on Tesla's stock. The drop in sales was far worse than expected, he wrote in a note to investors. 

The quarter is a “seminal moment” in the Tesla growth story, Ives wrote, adding that CEO Elon Musk will have to turn the company around. “Otherwise, some darker days could clearly be ahead that could disrupt the long-term Tesla narrative.” 

Ives maintained his Outperform rating on Tesla's shares and cut his one-year price target from $315 to $300. Ives estimated that China sales slid 3% to 4% during the period. 

Investors have dumped shares in Tesla, reducing the company's worth by 33% so far this year as they grew suspicious of the company's remarkable growth narrative. 

As growth has been slow and (profit) margins are compressing, Ives observed, "Street criticism is warranted with China a horror show and competition increasing from all angles." 

For some models, Tesla drastically reduced pricing in the United States last year by up to $20,000. It briefly removed $1,000 from the Model Y, its best-selling car, in March. These price reductions alarmed investors and reduced the company's profit margins. 

Analysts polled by FactSet expected the average selling price for Model Y to be $41,000 last quarter, $5,000 less than a year ago and $15,000 lower than the peak of $56,000 in June of 2022. 

Tesla's sales numbers also pulled down shares of its U.S. EV competitors. Shares of Rivian fell 5.2%, while Lucid stock dropped 3.5% on Tuesday. 

Deliveries of the Models 3 and Y, fell 10.3% year over year to 369,783. Sales of the company's other models, the aging X and S and the new Cybertruck, rose almost 60% to 17,027. Tesla produced 10.7% more vehicles than it sold during the first quarter. 

Softer-than-expected first-quarter sales are reducing analyst expectations for Tesla's quarterly earnings ahead of their scheduled release on April 23. 

Tesla’s sales come against the backdrop of a slowing market for electric vehicles in the U.S. EV sales grew 47% last year to a record 1.19 million as EV market share rose to 7.6%. But sales growth slowed toward the end of the year. In December, they rose 34%. 

Updated EV sales numbers will come later Tuesday when most automakers report U.S. sales. 

Other automakers also have had to cut electric vehicle production and reduce prices to move EVs off dealership lots. Ford, for instance, cut production of the F-150 Lightning electric pickup, and lopped up to $8,100 off the price of the Mustang Mach E electric SUV to sell 2023 models.