Tesla (TSLA) stock price is down almost 10% in the past 2 days resulting billions of dollars being wiped off its market cap as investors digest Tesla’s production numbers and price reduction.
Yesterday, Tesla announced that it delivered 90,700 cars and produced 86,555 vehicles during the last quarter.
The stock took a 7% dive on the news, but it’s unclear how the market is reacting to the actual numbers since Tesla also announced other big news at the same time.
The automaker said that it is reducing the price of all its vehicles in the US to compensate for the tax credit phase-out.
Tesla’s stock (TSLA) is down again today by over 2% as the market is still digesting yesterday’s news.
To be fair, the market is also down overall over the same period of time as worries over the impact of the Trump administration’s ongoing trade war with China continues to ramp up.
Here I am trying to understand the market’s reaction which was undoubtedly quite significant, but was it justified.
First of all, I am sure that the delivery numbers have nothing to do with the price drop.
Over 90,000 vehicles delivered is a new record and it’s coming on the higher end of my own expectations, which many said was too optimistic.
I think the production numbers might be more important here.
While overall Model 3 production increased by 15% quarter-over-quarter, the weekly average production for the quarter is still only at 4,700 units per week.
I have a tough time saying “only” here because it’s more than any other automaker when it comes to long-range all-electric vehicles, but it’s certainly not where Tesla said it would be by the end of 2018.
Tesla has been able to do some bursts of production at higher rates over the period, but it is not maintaining those production rates.
I think that explains the bulk of the market’s reaction, but the price reduction also likely has an impact.
Tesla reducing the price of their vehicles in the US shows that they know they need it to maintain some demand in the US after the tax credit phase-out.
But when I think about those two things combined, I suspect that Tesla might again surprised with improved margins on the Model 3.
Maybe the reason why production hasn’t increased as much as planned is that Tesla has instead been focused on production efficiency and increasing their gross margins.
To be clear, I think the Model 3 gross margin will be overall down in Q4 due to the much higher mix of less expensive versions of the vehicle during the quarter, but they could have still improved the margins enough to absorb that $2,000 price reduction.
If that’s the case, we have to look at this news a different way, but we won’t know for sure until Tesla released its earnings result in the next few weeks.
Let us know what you think in the comment section below.