CBS: Tesla Price Cuts Could Be a Sign of ‘Waning Demand’

The Associated Press

A recent report from CBS News notes that Elon Musk’s Tesla produced more cars than were ordered during their fourth quarter, which when combined with new price cuts for the electric cars, is leading many analysts to worry about consumer demand for the cars.

CBS News reports that analysts have become worried that Elon Musk’s electric car company may not be as popular as previously thought. Tesla reportedly produced 9,300 more vehicles than it sold last year, which when combined with Tesla reducing the cost of each vehicle by $2,000, has led analysts to begin worrying about the possible lack of demand for the electric cars.

CBS News writes:

If demand falls, they said, Tesla will enter a new phase of its business. Like other automakers, it will have to either cut production or reduce prices to raise sales. A drop in demand could also curtail earnings and jeopardize CEO Elon Musk’s promise to post sustained quarterly profits.

On Wednesday, Tesla did cut prices, knocking $2,000 off each of its three models. The company said the reductions will help customers deal with the loss of a $7,500 federal tax credit, which dropped to $3,750 this month for Tesla buyers and will gradually go to zero by the end of 2019.

“They have for a long time had more demand than supply,” Gartner analyst Michael Ramsey said. “It’s becoming apparent that that dynamic is changing.”

Some analysts actually believe that previous demands for Tesla vehicles were artificially high and expected to see a decline in demand at some point:

Jeff Schuster, a senior vice president at the forecasting firm LMC Automotive, said demand for Tesla’s lower-priced Model 3 has been artificially high for the past six months as the company overcame production problems at its Fremont, California, factory.

“You’ve had these inflated months because of delayed deliveries,” Schuster said. “We’re probably getting to that point where we’re getting to equilibrium and consumers aren’t necessarily waiting for vehicles.”

Last year, Tesla reported that about 420,000 buyers had put down $1,000 deposits to join the Model 3 waiting list.

LMC predicts that Tesla U.S. sales will rise in 2019 because it’s the Model 3’s first full year on the market. It anticipates sales to then fall by about 10,000 in 2020.

As a result, Tesla reportedly has ended up storing dozens of vehicles in empty lots around the country:

The Associated Press found one lot on the north side of Chicago where Tesla was storing dozens of vehicles in late December, and Mark Spiegel, a hedge fund manager who bets against Tesla stock, said other lots were full across the country.

Tesla said it sometimes stores vehicles on lots as they’re being shipped to company dealerships across the nation. The lot in Chicago has fewer cars on it today, the company said. “Our inventory levels remain the smallest in the automotive industry,” the company said Wednesday.

Tesla also said Model 3 sales should grow worldwide as it expands distribution and begins to offer leases. Deliveries in Europe and China will start in February, and a right-hand-drive version is coming later in the year, the company said.

In the fourth quarter, Tesla delivered 63,150 Model 3s, 13,500 Model S sedans and 14,050 Model X SUVs. In comparison, Wall Street projected 64,900 for the Model 3, 14,200 for the Model S and 13,600 for the Model X, based on average figures from previous quarters compiled by FactSet. CEO Elon Musk discussed the company’s latest issue stating: “What people should absolutely have zero concern about, and I mean 0, is that Tesla will achieve a 10,000 unit production week by the end of next year. […] I think people should really not have any concerns that we won’t reach that outcome from a production rate.”

Musk previously stated that Model 3 reservations had surged to over half a million, but on a recent conference call he went back on this statement saying: “To be more accurate, there have been 518,000 gross reservations for Model 3 and then we have 455,000 net reservations. But those cancellations occurred over the course of more than a year. The net gain since Friday, net of cancellations, has been over 1,800 per day – but I just didn’t want to leave people with the wrong impression.”

With Tesla already under investigation by the Department of Justice and the Securities Exchange Commission, the future is not looking bright for the company. Frank Schwope, an analyst with NORD/LB commented on Tesla’s performance today stating: “Tesla disappointed the market. The deliveries are below our estimates and the consensus estimates. I don’t expect that Tesla operates in the black in 2019.”

Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship. Follow him on Twitter @LucasNolan_ or email him at lnolan@breitbart.com

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