Tesla is probably about to report the largest drop in auto sales in the company’s history.
That’s not a shock —Tesla faced some special circumstances last quarter. But it’s still a concern: Tesla needs to keep its sales pace high to pay down its sizable debts.
Tesla will report first quarter sales and production figures this week, and Wall Street analysts expect sales and deliveries of its best-selling car — the Model 3 — to be about 50,000, or significantly lower than the 63,000 reported last quarter.
Meanwhile, Tesla has said that deliveries of its more expensive Model S and Model X cars will be less than the 22,000 the company delivered a year earlier. All that means the company is likely to announce that it delivered notably less cars than the 90,700 it reported last quarter.
That’s still significantly more than what Tesla reported a year ago, when Model 3 production was just getting started. During that quarter, the company sold less than 30,000 vehicles. But Tesla sales have never fallen so much quarter-over-quarter.
A couple of circumstances are to blame for the decline.
First, Tesla rushed to complete some sales before the end of last year so buyers could take advantage of a $7,500 federal tax credit, which lowered the amount people had to pay for Tesla’s vehicles. That tax credit has been cut in half for sales completed in 2019 — potentially making a Tesla a somewhat tougher sell for budget-conscious buyers.
Tesla (TSLA) responded by cutting prices by $2,000 per vehicle, making up for some of the lost tax credit. But the company said there was some “pull forward” of sales into the fourth quarter that would eat into first quarter results. And it said the sales of the Model S and Model X cars — which are pricier, more established models compared to the Model 3 — would be below what Tesla (TSLA) delivered a year earlier.
Second, the company started shipping its Model 3 to China and Europe for the first time in the first quarter.
Tesla was holding off on international sales as it tried to fill as many US orders as possible, largely so it could capitalize on the full tax credit before it was reduced. But the new push on international sales has been a logistical challenge for Tesla, which said in January that it would deliver 10,000 fewer Model 3s than it produced because it takes longer to ship the cars abroad.
When Tesla issued that guidance in January, CEO Elon Musk said he was still “optimistic about being profitable in Q1.” But he admitted a month later that he expected a modest first quarter loss. By the middle of March, Musk was emailing employees and asking them to do whatever they could to deliver every car possible before the quarter closed.
“As challenges go, this is a good one to have, as we’ve built the cars and people have bought the cars,” he wrote in that email. “So we just need to get the cars to their new owners!”
All of that means this week’s report could reveal the first quarter-to-quarter drop in sales at Tesla in nearly two years — and what is likely to be its largest drop in sales by far.
That could also stir up new concerns among some investors about whether Tesla has enough cash going forward.
In March, Tesla paid off a $920 million bond that took a big chunk out of the $3.7 billion in cash it had on hand at the start of the quarter. That followed a $230 million payment the company made in November.
Its next big payment is a $566 million debt issue that is due in November, followed by another $1.4 billion in notes that is due in two years.
In addition to those debt repayments, Tesla needs more cash soon as it prepares to start making the Model Y. It’s also building a plant in Shanghai.
Even so, the talk of a cash crunch has quieted down somewhat, at least compared to last year.
“From our standpoint we wouldn’t characterize Tesla as having a robust liquidity position by any means, but it’s less tenuous than it was six to nine months ago,” said Bruce Clark, credit analyst at Moody’s.
Correction: The initial version of this story gave an incorrect range of analyst estimates for the first quarter vehicle deliveries by Tesla.
