Home Stock Market Commentary Can Tesla Hit Its 2023 EV Deliveries Target? – Vahid Karaahmetovic

Can Tesla Hit Its 2023 EV Deliveries Target? – Vahid Karaahmetovic

Tesla (NASDAQ: TSLA) lowered prices across the board in the U.S. for the third time in 2023 as the company ramps up efforts to attract more buyers amid rising interest rates. The world’s biggest electric vehicle (EV) maker reduced the prices of its luxury models including the S large sedan and the Model X by $5,000 each. 

Tesla also cut prices of the Model Y, its most popular model, by $2,000, and announced a cheaper dual-motor version priced at $49,990. The small sedan, Model 3, saw its price reduced by $1,000. 

Sam Abuelsamid, an e-mobility analyst at Guidehouse Research, said the cuts indicate a slowdown in demand for Tesla. He said the automaker must sell more vehicles to maintain full production capacity at its factories and protect its high-profit margins. 

“Overhead of underutilized plant eats up margin extremely quickly,” Abuelsamid told AP. 

On the other hand, some analysts believe that Tesla’s price reductions are aimed at taking advantage of its profit margin per vehicle, which is higher compared to most of its rival car manufacturers. In addition, the cuts could help Tesla expand its market share and put additional pressure on startups and legacy carmakers foraying into EVs. 

The latest price cuts pushed Tesla shares to 3-week lows as analysts warned they will impact the company’s auto gross margins.

Tesla weekly chart (Source: Tradingview)

Why is Tesla cutting prices?

Elon Musk noted the importance of affordability earlier this month. He said Tesla continues to see strong demand, “but if the price is more money than people have, that demand is irrelevant.”

The biggest price cuts were imposed on Tesla’s older S and X models, which saw their sales plunge 38% from January to March. The company slashed the price of the two-motor Model S by 5.6% to $84,990, and the tri-motor S Plaid by 4% to $104,990. 

Two-motor Model X and the X Plaid saw their prices reduced by 5% and 4.6%, respectively, to $94,990 and $104,990. The price of the Y Long range model was trimmed by 3.7% to $52,990, while the Y Performance saw its price reduced by 3.4% to $56,990. Tesla also slashed prices of the Model 3 rear-wheel-drive and the Performance model by 2.3% to $41,990 and 1.9% to $52,990, respectively. 

The move comes just a month after Tesla announced significant price cuts for its S and X models. This was after the company trimmed the prices of several of its EVs in January, making some models eligible for the US $7,500 federal tax credit. Some Model Y versions and the base Model 3 saw their prices reduced by 20% and 6%, respectively. 

The reductions lured more buyers in the latest quarter, in spite of high-interest rates amid the Federal Reserve’s monetary policy tightening aimed at bringing down inflation and slowing the US economy. Since the Fed started hiking rates in March 2022, the average new vehicle loan has increased from 4.5% to 7%, according to Edmunds. 

The price reductions come after Tesla’s Q1 sales rose by 36% year-over-year, though below analysts’ estimates. 

Q1 and 2023 deliveries

The carmaker reported 422,875 vehicle deliveries worldwide in the quarter from January to March, compared to 310,000 in the same quarter last year. However, the report still missed the analyst consensus estimates of 432,000, according to FactSet. On a sequential basis, the deliveries grew 4% from the 405,278 the company reported in the last quarter of 2022.

Tesla reported 10,695 deliveries of its higher-priced S and X models, representing roughly 2% of total deliveries in the quarter. The number of deliveries of lower-priced Model 3 and Model Y in the quarter stood at 412,180. In the three-month period ending Mar. 31, Tesla produced 19,437 Model S and X cars, while total deliveries of Model 3 and Y vehicles hit 421,371 in the quarter. 

“We continued to transition towards a more even regional mix of vehicle builds,” Tesla wrote in a statement. 

The carmaker now sells four models produced across two of its plants in the US, one in Shanghai, and one outside Berlin, Germany. Last month, Musk said Tesla is also planning to build a new car assembly plant in Monterrey, Mexico. 

Tesla has a battery plant in Sparks, Nevada, where it also produces Semi – its heavy-duty electric truck. The company started delivering Semi in December 2022. 

On Sunday, Tesla announced plans to build a Megafactory in Shanghai, China, where it will annually produce 10,000 Megapacks – huge batteries capable of storing vast amounts of energy. 

Megapacks allow grid operators to move extra capacity between states and counties, enabling Tesla to store additional power from intermittent sources and use it during periods of high demand, or amid unexpected outages. 

Each Megapack can store enough energy to power an average of 3,600 homes for one hour, Tesla stated. The company added these gigantic batteries are designed for utilities and big commercial projects, not cars.

Tesla already has a Megafactory in Lathrop, California, which can produce 10,000 Megapacks a year. According to Musk, the new Megafactory in Shanghai is meant to supplement the output from the California plant. 

Tesla will begin the construction of the factory in the third quarter of 2023, while production is expected to start in mid-2024, according to the report by the Chinese state media agency Xinhua. 

“We believe this announcement is a potential game changer for Tesla on the battery front,” said Daniel Ives, an analyst at Wedbush Securities. “In this EV [electric vehicle] arms race Tesla is further building its lead in battery technology with the new Megapack factory in China another flex the muscle moment for Musk.”

Final thoughts

All these supply-side efforts are concentrated on Tesla attempting to hit its internal target of 2 million EV unit deliveries in 2023. On the other hand, many analysts are skeptic that Tesla will be able to hit its target and expect the EV maker to deliver 1.8 million cars.