Tesla Quarterly Sales Fall as Battery Supply Crimps Output

  • Carmaker still hits first-half sales goal as Model 3 nears
  • Elon Musk’s auto company delivers 22,000 vehicles in quarter

Tesla's Ambitious Model 3 Production Plans

Tesla Inc. delivered just enough vehicles in the second quarter to meet its first-half sales guidance, with production slowed by a temporary shortage of battery packs.

The maker of electric cars and energy-storage devices shipped more than 22,000 cars and SUVs in the period, compared to a record 25,051 vehicles in the first quarter, according to a company statement. With the results released Monday, Tesla’s first-half sales were at the lower end of its prediction of 47,000 to 50,000 units.

“The major factor affecting Tesla’s Q2 deliveries was a severe production shortfall of 100 kWh battery packs, which are made using new technologies on new production lines,” Tesla said in the statement.

The sales report comes as Tesla enters a critical quarter. The Model 3, set to begin production this week, is key to Tesla’s goal of reaching mainstream consumers with a smaller, more affordable electric sedan. With prices slated to start at $35,000 before any incentives or options, the Model 3 is the youngest publicly traded U.S. automaker’s best chance at mass-market penetration. The Model 3 price tag is in line with the industry’s average new-car transaction price of $34,442 in June, according to Kelley Blue Book.

Sales included 12,000 Model S sedans and 10,000 Model X sport utility vehicles. The total was in line with the lower of two analyst estimates in a Bloomberg survey but trailed their 22,900-vehicle average. Second-half Model S and Model X deliveries are expected to exceed first-half sales “provided global economic conditions do not worsen considerably,” the company said.

Industrywide auto sales fell 3 percent in June and the month’s annualized selling rate slipped to 16.5 million vehicles from 16.8 million a year earlier, according to Autodata Corp.

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Tesla didn’t reveal how many cars were in transit to customers at the end of the quarter, a departure from previous production and delivery reports. In the first quarter, Tesla said roughly 4,650 vehicles were in transit to customers and would be counted as deliveries the following period.

The company said it produced 25,708 vehicles -- about 3,700 more than it sold -- but said the “severe” battery shortfall was the major factor affecting deliveries, suggesting vehicle production could have been higher.

“Overall, it’s close enough,” analyst Ben Kallo of Robert W. Baird & Co. said of the second-quarter results in a phone interview. “All eyes are on the Model 3 right now. You saw 12,000 sales of the Model S, which is positive because the worry was cannibalization.”

The results were released after close of shortened holiday trading on Monday. Palo Alto, California-based Tesla fell 2.5 percent Monday and is up 65 percent this year.

Model Misconception

Chief Executive Officer Elon Musk has told shareholders that one of the company’s main challenges will be eliminating any “misconception” about the differences between the Model S, which first hit the market in June 2012, and the smaller, cheaper Model 3. It’s not unusual for tech companies to see an “Osborne effect,” where excitement around future products negatively impacts sales of the current products. Tech titans like Apple Inc. typically endure a tapering of iPhone sales in the months leading up to the introduction of the latest phone.

Musk earlier told his 9.7 million Twitter followers that he expects to complete the first Model 3 production vehicle on Friday. A “handover party” for roughly 30 customers is planned for July 28 at the company’s auto assembly plant in Fremont, California. From there, Tesla faces an extremely steep production ramp, with Musk announcing plans to make 100 Model 3s in August, more than 1,500 in September and then 20,000 a month in December.

“Initial production ramp for the Model 3 looks like it may be better than expected -- but investors should continue to focus on whether the Model 3 can be produced profitably and with strong initial quality,” Sanford C. Bernstein analyst Toni Sacconaghi wrote in a note to clients Monday.

Part Deux

Tesla first unveiled the Model 3 in March 2016 at a late night party at the company’s design studio in Hawthorne, California. The company’s vast fan base has been eagerly anticipating “Part Deux” of the reveal, which is expected to include more details about autonomous driving features.

The company reported last spring that 373,000 people have placed $1,000 deposits for the vehicle and hasn’t given an updated reservation figure in the year since. Model 3 reservations “skew young and urban,” Jon McNeill, Tesla’s president of global sales and service, said last year. The first Model 3s are expected to go to employees of Tesla and SpaceX, Musk’s space exploration company.

Tesla, which releases global sales figures quarterly instead of monthly like other carmakers, does not break out where customers are located. The company said last month it’s working with the Shanghai government to explore local manufacturing in China, where electric-vehicle demand has been on the rise. Chinese Internet giant Tencent Holdings Ltd. took a 5 percent stake in Tesla in March.

— With assistance by Alex Webb

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