Shares of Tesla Inc. (TSLA - Get Report) fell to open the new trading year Wednesday, Jan. 2, after the electric vehicle maker announced fourth-quarter deliveries that missed Wall Street's expectations.
Tesla said it delivered 90,700 cars in the quarter, up 8% from the previous quarter, but below analysts' expectations of roughly 92,000.
The stock fell 6.81% to close at $310.12 a share.
Although the delivery numbers disappointed, they set a fresh record high for the company. Meanwhile, production grew in the fourth quarter to 86,555 cars, also 8% above its previous record high in the third quarter.
Tesla said it would be cutting prices of the Model S, Model X, and Model 3 by $2,000 in the U.S., starting immediately. The electric vehicle tax credit for customers dropped to $3,750 from $7,500 on Jan. 1.
"We are taking steps to partially absorb the reduction of the federal EV tax credit (which, as of January 1st, dropped from $7,500 to $3,750)," Tesla said Wednesday.
The price cuts will pressure gross margins, something Tesla investors are particularly sensitive to.
"Tesla announced a $2k price cut this morning on its US sold vehicles to help soften the blow from the EV tax credit cut, a potential positive for demand but not what the bulls wanted to hear on the impact to profitability and ultimately the bottom line," wrote Wedbush Securities analyst Daniel Ives in a note on Wednesday.
Analysts are now cutting their price estimates on Tesla.
RBC Capital Markets analyst Joseph Spak cut his price target to $290 a share from $340, representing roughly 5% downside. Sure, the deliveries miss is a disappointment, but it's the price cut that has Spak worried as well. "4Q deliveries disappoint but $2k price cut on Model S/X/3 raises demand and gross margin target questions," Spak said. He added, "We reduce our outer-year deliveries (now 1mm deliveries in 2024, 1 year later than prior) and gross margin forecast."
Consumer Edge analyst Jamie Albertine lowered his full year 2019 earnings-per-share estimate to $8.02 from $9.26 "due to lower Model 3, S & X deliveries, lower average selling prices and slightly lower automotive gross margin assumptions vs. our prior model." Albertine, who has a price target of $350 a share, does think the selling Wednesday is overdone. "The optics of this decision are weighing on shares, which is not surprising, but in the broader context of the staggering growth Tesla has executed in the past year we believe is over-correcting on this news," he wrote.
Still, car makers always need to watch their prices like hawks. "Wall Street doesn't like anything that eats into profits, but it's a necessary move for the company to try and soften the blow to consumers, especially as demand softens," said Jessica Caldwell, Executive Director of Industry Analysis at Edmunds. She added, "finding that perfect balance between production, demand and price is an age-old problem for all automakers."
Tesla will begin selling cars in Europe and China starting in February, as part of its drive to expand internationally. The China story remains one for investors to keep their eyes on after Tesla reported it had lost a significant number of deliveries in China because of higher tariffs.
"There remain significant opportunities to continue to grow Model 3 sales by expanding to international markets, introducing lower-priced variants and offering leasing," a Tesla spokesman said in a statement.
Tesla shares fell roughly 5% in 2018.