By Tim Higgins
Tesla Inc. reported Model 3 sedan deliveries that missed Wall
Street's estimates and said it would cut prices on all its
vehicles, news that drove shares of the electric car maker down
more than 8% on Wednesday.
Tesla cut prices by $2,000, moving the starting cost of the
Model 3 -- the vehicle it is banking on to reach the mass market --
to $44,000. The move, in part, was to make up for the elimination
of federal tax incentives for Tesla vehicles that begin to phase
out this year, it said.
The company has been working toward offering the Model 3 compact
sedan at $35,000, part of Chief Executive Elon Musk's bet Tesla can
make a more affordable vehicle as part of his vision for broader
adoption of electric vehicles in the auto industry.
The car maker said total deliveries, fueled by increased
production and sales of the Model 3 sedan, more than tripled to
90,700 in the fourth quarter, from 29,870 a year earlier. Analysts
surveyed by FactSet, though, had expected total deliveries,
including the more pricey Model S large sedan and Model X
sport-utility vehicle, of 92,000 vehicles.
Fourth-quarter deliveries of the Model 3 rose to 63,150 from
1,550 a year earlier. Analysts had expected 64,900.
Tesla shares sank $27.11 to $305.69 after the company missed
analysts' expectations on Model 3 deliveries as well as its own
guidance on full-year deliveries of the Model S and Model X.
Full-year total deliveries reached 245,240. In 2017, the auto
maker sold 102,807 vehicles after struggling to increase production
of the Model 3.
Producing the Model 3 has proved harder than Mr. Musk had
expected, and Tesla missed several self-imposed deadlines to ramp
up production to a rate of 5,000 a week. The chief executive had
promised to increase sales and production of the sedan in the
fourth quarter, urging potential buyers in recent weeks to take
advantage of a $7,500 federal tax credit that drops to $3,750 for
its vehicles in the first half of this year, and eventually zero by
next year.
Wall Street might be taking the price cut as a negative sign,
said David Whiston, an analyst at Morningstar Research Services.
The move "makes it seem like a price cut is necessary to keep
demand up" for the Model 3, he said.
Tesla in October surprised Wall Street with a record profit in
the third quarter, thanks to increased production of the Model 3.
Mr. Musk said the company had reached the point where it can be
sustainably profitable going forward. His vision of personal
transportation has excited investors, sending shares to levels that
give the company a greater market value than General Motors Co.,
despite Tesla never having turned an annual profit and selling a
fraction of the cars.
Mr. Musk has been trying to spend less making the Model 3 so
Tesla can lower its price. UBS Securities LLC had estimated that a
$42,000 Model 3 would eke out a $670 operating profit, while the
then-lowest-cost version at $49,000 would make more than $3,000. A
$35,000 version was estimated at the time to lose about $2,300 a
car.
For Tesla and its chief executive, 2018 marked a challenging
year. While the company more than tripled global deliveries, the
number was far shy of what Mr. Musk has predicted in recent years.
In 2016, he had suggested he could make as many as 200,000 Model 3s
in 2017, while ramping up production on all its vehicles to 500,000
in 2018.
Even as Tesla became the rare new U.S. auto maker to survive
beyond infancy, its cash levels ran low as grappled with
manufacturing delays.
Mr. Musk, meanwhile, didn't help himself with sometimes erratic
public behavior. He appeared to smoke marijuana during a live
interview and announced on Twitter in August he had secured funding
to possibly take the company private at $420 a share.
The Securities and Exchange Commission said he misled investors
with those comments, and sought to strip him of serving on publicly
traded companies as a director or officer. Mr. Musk settled the SEC
claims, retaining his CEO role at Tesla but giving up his title as
chairman.
Last week, Tesla added Oracle Corp. chairman Larry Ellison -- a
close friend of Mr. Musk -- and Kathleen Wilson-Thompson, global
head of human resources for Walgreens Boots Alliance Inc., to its
board as part of the SEC settlement. The move followed the
elevation to chairman in November of Robyn Denholm, a veteran
finance executive who joined the board four years ago.
All the while, Tesla was trying to keep pace after finally
reaching its 5,000-a-week production goal for the Model 3 during
the final seven days of June, In the fourth quarter, Tesla built a
total of 61,394 Model 3 sedans, or on average 4,723 a week during
the period's 13 weeks.
The company also slightly missed its goal of delivering a
combined total of 100,000 Model S and Model X vehicles during the
year. Tesla delivered 13,500 Model Ss and 14,050 Model Xs in the
fourth quarter, raising the total for the year to 99,394 compared
with about 100,000 in 2017.
--Kimberly Chin contributed to this article.
Write to Tim Higgins at Tim.Higgins@WSJ.com
(END) Dow Jones Newswires
January 02, 2019 11:48 ET (16:48 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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