Tesla is selling fewer Model S and X cars

Image: VIVEK PRAKASH/AFP/Getty Images

Tesla’s vehicle production & deliveries report for the first quarter of 2019 is out, and it’s not great. 

Not so much because of the 31 percent quarter-over-quarter sales drop — the largest in Tesla’s history — though. According to Tesla, due to delivery challenges in Europe and China, the company was left with 10,600 vehicles in transit at the end of Q1, meaning those sales will count towards the second quarter. 

Far more problematic were Model S and X deliveries in Q1, which fell from 27,607 to 12,100 since last quarter — a 56 percent drop. 

Tesla delivered a total of approximately 63,000 vehicles in Q1 2019 — a 110 percent year-over-year increase thanks to Model 3 production finally ramping up. 50,900 of those were Model 3 cars, which is in line with expectations according to CNN. 

But back in January, Tesla said it expected model S and X deliveries to be “slightly below” Q1 2018. Deliveries for Model S and X in that quarter were 21,815, so the Q1 2019 numbers are a disappointment whichever way you slice it. 

It’s possible that the cheaper Model 3 is cannibalizing Model S and X sales — or that the customers are simply losing interest in these models. 

Other factors are in play; most importantly, the halving of U.S. tax credit towards buying a Tesla car, from $7,500 to $3,750 as of January 1. It’s likely that many buyers rushed to get a Model S or X in the previous quarter to take advantage of the bigger tax credit. 

The company is already struggling to make the $35,000 Model 3, which finally launched in February, profitable — Tesla recently said it would close most of its stores to reduce costs, and then partially backtracked on that but increased car prices. And significantly lower deliveries of its pricier cars surely won’t help the company’s finances. 

Overall, Tesla expects its Q1 net income to be “negatively impacted,” though it remains to be seen how much. 

Good news for the company is that it still expects to deliver 360,000 to 400,000 vehicles in 2019 (again, largely due to increased interest for the Model 3), and that it ended the quarter “with sufficient cash on hand.”