Tesla produced a record number of cars in the final quarter of 2018, the company reported on Wednesday. Tesla produced 61,394 Model 3s, a 15 percent gain from the previous quarter. Production of the Model S and Model X totaled 25,161 units—slightly below last quarter’s figure of 26,903.
This represented a new overall production record, but Wall Street wasn’t impressed.
As I write this, Tesla’s shares are down about 8 percent for the day to $305.
Tesla produced about 4,700 Model 3 vehicles per week in the fourth quarter. Notably, that’s still below the 5,000-car weekly production rate Tesla achieved—however briefly—in the final week of June. It’s also well below targets previously articulated by CEO Elon Musk.
In May 2017, Musk set a goal of producing 5,000 Model 3s per week by the end of 2017. The company missed that number, but it did achieve a revised target to produce that number of Model 3s by the end of Q2 2018. At the time, Musk predicted that output would rise to 6,000 Model 3 cars per week by August 2018.
Instead, Tesla seems to have backslid, struggling to actually produce 5,000 Model 3s per week on a sustained basis in the fourth quarter.
For the full year, Tesla produced 145,846 Model 3s—vastly more than the company produced last year. Production of Model S and X clocked in at 99,394—slightly below last year’s figure of 101,312 and in line with expectations.
Tesla is cutting prices to offset the expiring federal tax credit
Tesla delivered 90,700 cars in the final quarter of 2018. Deliveries actually exceeded production, a sign that Tesla was rushing to ship as many cars as possible before the end of the year. A big reason for that: a key federal tax break was scheduled to expire at the start of the year.
Under federal law, customers who buy an electric car with a big battery like the Model 3, Model S, or Model X are eligible for a $7,500 federal tax credit. But the credit is limited to the first 200,000 vehicles sold by a particular manufacturer.
Once that threshold is reached, the credit phases out over a one-year period. That process began at the start of the year, with the credit falling from $7,500 to $3,750. It will fall again to $1,875 on July first before disappearing altogether at the end of the year.
Tuesday’s $3,750 reduction in the credit’s value amounts to a $3,750 hike in the price of Tesla’s cars. So Tesla says it’s cutting prices $2,000 across the board to partially offset this price hike.
One big question for Tesla is whether it can continue ramping up production of the Model 3. The other key question is whether the company can attract tens of thousands of buyers during the coming year.
Tesla says that more than three-quarters of Model 3 orders in the final quarter of 2018 came from new customers rather than existing reservation holders. That suggests that there continues to be robust demand for the Model 3. Moreover, Tesla has still not offered the $35,000 version of the Model 3 Elon Musk promised when the vehicle was unveiled. Presumably, there are a lot of customers out there who would like to own a Tesla vehicle but can’t afford the high price tags on Tesla’s current lineup.
On top of that, Tesla’s Model 3 deliveries have been limited to North American customers. Tesla is planning to expand sales to Europe and China next month and will expand to other parts of the world later in the year. So even if Model 3 demand flagged in the United States, Tesla may be able to keep its factories busy building cars for international customers for many months to come.
