Tesla (NASDAQ:TSLA) released Q1 delivery numbers, showing a substantial slowdown in deliveries. The result? TSLA shares have been under pressure, dropping more than 40% over the last 90 days alone.
What do Q1’s poor delivery numbers mean for Tesla stock, and to what extent do they signal more difficulties to come at the EV auto giant?
How Bad Were Q1 Delivery Numbers?
While a slight drop might not rattle investors too much, the Q1 Tesla deliveries released last week were quite concerning. In total, Tesla was able to deliver 336,000 cars during the first quarter, about 13% lower than the 387,000 reported in the year-ago period.
Analysts were estimating very slight year-over-year delivery growth, with the consensus estimate falling at 390,000 vehicles. Production also fell off by 16%.
What Is The Real Problem at Tesla?
Much more than the delivery figures themselves, the reasons for them will determine how bad the news really is for Tesla shareholders. Tesla’s top brass highlighted changes to its production lines in anticipation of rolling out a new and more affordable version of its Model Y SUV.
If this is the primary culprit, then the delivery slump is mostly logistical in nature and could prove to be temporary. Moreover, the introduction of a more affordable electric SUV is likely to benefit Tesla in the long run by boosting its sales.
The problem, though, is that the cause of Tesla’s slowdown may not be so cut-and-dry. CEO Elon Musk has attracted so much negative sentiment for his role in the Trump administration’s Department of Government Efficiency. Many observers believe that backlash against Musk’s political role has contributed to slowing performance at Tesla.
Evidence that political brand damage is hurting the company may be found most readily in the market for used Teslas. Over the last year, the price for used Tesla’s has fallen at a significantly faster pace than the price index for all used vehicles. This likely reflects both reluctance on the part of buyers to purchase a Tesla and some owners selling their vehicles before they otherwise would to reflect their disagreement with Musk’s political activities.
Will Tesla’s Brand Survive?
Another very real question about Tesla at the moment is how strong its brand is. In the United States, competition from other automakers is heating up and beginning to put pressure on the once-unassailable king of EV sales.
Even so, Tesla still accounts for over 50% of US EV sales. Ford and Hyundai are its next-closest competitors, but neither of these automakers has yet managed to achieve a double-digit market share.
The competitive problems have become much more pronounced in foreign markets. In January, Tesla is estimated to have sold only about half the vehicles in Europe it had in the same month a year ago.
Sales in France were down 45%, while Portuguese sales fell 50%. Similar numbers prevail over most of Europe.
The European market appears to be responding extremely negatively to Musk’s political affiliation with the Trump administration, and the damage may be sufficient that the brand won’t recover there anytime soon.
Tesla is also facing emerging competitive difficulties in China. Last year, a little over one-third of Tesla’s vehicles were delivered to Chinese customers. Musk and his team will likely be put under ever-greater pressure by China’s domestic answer to Tesla, BYD.
Recently, BYD unveiled a new charging system that can give its vehicles a 250-mile range boost with just five minutes of charging. While the company will still need to deploy charging stations to support this new feature, the fast-charging advantages may very well propel BYD sales in China.
Ironically, the Trump administration’s tariffs are only likely to exacerbate Tesla’s difficulties in foreign markets. Many countries are responding with retaliatory tariffs of their own that could make Tesla vehicles more expensive, thus reducing their appeal to consumers.
Even beyond the direct economic effects of the new tariffs, Tesla is likely to take the brunt of negative consumer sentiment against America’s trade policy in foreign markets due to Musk’s direct involvement with the administration.
What Do Tesla Delivery Numbers Mean for Tesla Stock?
On its own, a quarter of bad deliveries likely wouldn’t be the end of the world for Tesla shareholders. After all, automakers go through cyclical periods of higher and lower sales.
Tesla has even provided a compelling business reason for the slowdown in the form of production line updates. If this was the only cause, it’s likely that TSLA owners could chalk the problems up to temporary logistical snags that would have little impact on the company’s long-term value.
Tesla’s Q1 performance, however, also seems to reflect deeper brand damage that may be much less temporary. While Elon Musk appears to be on the verge of taking a step back from his active and visible role in Washington, the extremely negative consumer sentiment he has generated during his time there may not fade quickly.
The current climate is going to prove tricky for Tesla to keep delivery numbers in tact. Rising inflation and tariffs are set to strain consumer budgets and so make people less likely to buy new vehicles. Add to those woes a global trade war and Tesla is going to be sledding uphill in foreign markets.
When you zoom out the reality is Tesla’s Q1 delivery numbers signal serious challenges lie ahead. While Tesla remains the 800-pound gorilla in domestic EV sales, brand damage and a weakening competitive position abroad threaten to reduce future revenues and earnings.
Even in the US, buyers will seriously look to other options like Ford, GM and Hyundai. So, while the Q1 delivery figures in and of themselves may not be too bad for TSLA, the larger trends point to negatives on the horizon for shareholders in the medium term.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
