Tesla Model 3 sales rise in May, but demand still hasn’t fully recovered
Tesla’s sales of its Model 3 perked up in the U.S. in May, according to estimates from the website InsideEVs, after a round of price cuts.
That goosed Tesla’s depressed stock price, which jumped 8% to close Tuesday at $193.60.
But Tesla car sales will need to blast off in coming months if Chief Executive Elon Musk hopes to approach the 360,000 to 400,000 cars he told Wall Street he’d sell this year. Last year, Tesla sold about 240,000 cars worldwide.
In the U.S., Tesla sold 13,950 Model 3s in May, up from 10,050 in April, according to InsideEVs, which has tracked monthly sales for electric and plug-in hybrid cars for nearly 10 years with a fairly reliable track record.
Still, demand this year remains far below the level in late 2018. In the last five months of 2018, according to InsideEVs figures, Tesla sold 101,700 Model 3s in the U.S.; in the first five months of 2019, it sold 46,425.
Sales of older Model S and Model X luxury electric vehicles strengthened in May too, InsideEVs said — to 2,400 vehicles from 1,875. But that is way down from a year ago; sales of those cars fell to 12,700 in the first quarter, from 27,500 in the fourth quarter of 2018.
Questions surrounding Tesla demand and growth prospects have pressured the company’s stock since January, when the stock was trading as high as $347.31 a share.
“We’re all pleased to see they have a bit better sales in the U.S.,” said Vicki Bryan, who tracks high-yield investments as chief executive at Bond Angle. “The price slashing has taken hold. But are they making money doing this?”
Tesla reports sales figures quarterly rather than monthly because, it says, monthly numbers fluctuate too much to be meaningful. A spokeswoman said Tesla is different from other carmakers because it builds cars for different markets at different times.
Tesla began shipping Model 3s to Europe in January and sales since then have been erratic. Tesla doesn’t release country-by-country vehicle-delivery numbers; vehicle registrations are used as a proxy in several countries. In Norway, Tesla’s biggest European market, government data show Model 3 registrations bounded from 864 in February to 5,315 in March. The number plunged in April to 650, then rose to 723 in May.
In Germany, independent market analyst Matthias Schmidt uses electric vehicle subsidy applications to estimate orders. German Model 3 orders have fallen every month since the first of the year: in January, 911 vehicles; February, 835; March, 811; April, 735 and May, 664. Schmidt said actual sales tend to come in at about 10% above his subsidy-application estimates, but trends have proved consistently accurate.
Investors will be eager to learn what affect the Trump administration’s trade war has had on Tesla sales in China. May sales estimates from that country aren’t yet available.
Musk has guided Wall Street to expect Tesla to deliver 90,000 to 100,000 vehicles in the current quarter, which ends June 30. His full-year guidance of 360,000 to 400,000 vehicles this year is at least 43% higher than Tesla’s sales in 2018.
The growth won’t come from the luxury Model S and Model X, the combined sales of which dove 56% in the first quarter. The Model 3 was always expected to cannibalize sales of the Model S. They’re both sedans, and the 3 is fresher.
The plan was to sell so many Model 3s that higher volume would make up for smaller profit margins — assuming the car can be sold at a profit at all. According to Musk’s forward guidance to investors, Tesla was supposed to be selling 400,000 to 500,000 Model 3s a year by the end of 2018. Sales volume so far hasn’t reached half that rate, but the company has spent billions of dollars to scale up factories, retail stores, service centers and car-charging networks.
Whether the Model 3 can ever achieve sustainable profits remains an open question. Last year, after two profitable quarters in a row, Musk said that he was “optimistic about being profitable in Q1 and for all quarters going forward.” The company lost $704 million in the first quarter, and analysts expect it to lose an additional $235 million in the current period.
If Model S and Model X continue their sales decline, the average selling price of Tesla vehicles will continue to drop. Tesla’s decision to finally produce cheaper Model 3s closer to the long promised $35,000 base price hurts margins too. And the company has cut prices on its cars several times over the last year.
Analysts, on average, still expect deliveries of 92,000 vehicles in the current quarter and 362,000 for the full year, according to FactSet. That would require a huge increase in June sales. The consensus stock price target is $285 a share – even though annual losses are predicted to be worse than in 2018.