On Wednesday morning, Elon Musk's company reported that it delivered 90,700 vehicles in Q4 -- up 8% sequentially and over 200% annually, but below an analyst consensus of roughly 92,000. Model 3 deliveries totaled 63,150, up 13% sequentially and far above year-ago deliveries of just 1,550, but below a consensus estimate of 64,900.
Deliveries for Tesla's Model S luxury sedan fell 11% annually to 13,500 and missed a consensus of 14,200. Deliveries for the Model X luxury crossover rose 7% to 14,050 and beat a consensus of 13,600. For the whole of 2018, 99,394 Model S and X units were delivered, down 2% relative to 2017 and slightly below Tesla's prior guidance of 100,000.
Tesla also announced that it's cutting Model 3, S and X prices across the board by $2,000. The company claimed the move is an attempt to partly offset a 50% reduction (effective January 1st) in the U.S. federal electric vehicle tax credit from $7,500 to $3,750.
As of the time of this article, Tesla's shares are down 6.3% to $311.50. With the help of a strong Q3 report in which the company disclosed significant earnings and cash-flow improvement, Tesla surged from an early-October low of $247.77 to an early-December high of $379.49, before getting hit by December's market selloff.
Notably, Tesla says that over 75% of its Q4 Model 3 orders came from new customers, rather than people who had put down $1,000 for a reservation before it opened up its Model 3 order system to the general public in July. While this stat could be taken as a sign of growing consumer interest in the Model 3, it also suggests a large percentage of consumers who got a reservation want a cheaper version of the Model 3 to launch before placing an order.
And there still appear to be a lot of reservation holders out there. Tesla reported having 420,000 Model 3 net reservations at the end of Q2, before its order system was opened up. In its Oct. 25 Q3 report, the company said that less than 20% of the 455,000 net reservations it had as of August 2017 have been cancelled.
For now, Tesla's cheapest Model 3 is its Mid Range Battery model, which launched in October, has a 260-mile range and comes with a $44,000 starting price. On the Q3 earnings call, Musk indicated customers would begin getting their hands on the Standard Battery version of the Model 3, which has been promised to have a 220-mile range and $35,000 starting price, in February or March.
However, it's still unknown just how rapidly Tesla will ramp production of the Standard Battery Model 3, and just how profitable it will be for a company that scrambled in 2018 to become cash-flow positive and avoid a fresh capital raise. Last May, Musk claimed that Tesla would "lose money and die" if it began making the Standard Battery Model 3 right away. On the Q3 call, he said his company is "pushing very hard" to bring the car's cost of goods sold (COGS) below $30,000.
Meanwhile, Tesla's Q4 figures and $2,000 price cuts suggest that the Model 3 versions that it currently sells are increasingly demand-constrained rather than supply-constrained. The company missed Model 3 delivery estimates even though it launched a cheaper version of the car early in Q4, and even though one would expect a flurry of year-end orders from American buyers looking to get a $7,500 federal tax credit for their purchase while it's still available.
In addition, after having nearly doubled sequentially in Q3, Tesla's Model 3 production rose a more modest 15% in Q4 to 61,394. That implies weekly production of slightly over 4,700 -- a level well below the 6,000-unit weekly rate that Tesla said in its Q2 shareholder letter that it was aiming to reach by late August.
Separately, the Model S deliveries miss indicates (unsurprisingly) that Model 3 sales are eating into demand for Tesla's original electric sedan. It also raises questions about whether Tesla will be able to hit a 2019 analyst consensus for Model S deliveries to grow slightly to a level of 50,800.
As Tesla is eager to stress in its Q4 deliveries report, the company still has some major levers to press for boosting Model 3 demand outside of launching a Standard Battery model. European and Chinese deliveries are promised to start in February -- eventually, demand in both markets will be met via local Gigafactories -- and the company plans to begin making a right-hand drive version of the car (needed for markets such as the U.K. and Japan) "later in 2019." It also plans to make Model 3 leasing options available this year.
Tesla is of course also pushing ahead with plans to launch its low-cost Model Y crossover. Musk has indicated the Model Y, which will lean heavily on the Model 3's design, will be unveiled on March 15, and that volume production will start at some point in 2020.
However, with Tesla having ended 2018 sporting a $57 billion market cap ($10 billion higher than that of General Motors (GM - Get Report) , a lot of future Model 3 and Model Y sales growth has clearly been priced into its stock. That limited margin of error is likely why markets are responding so harshly to a deliveries report that suggests demand for Tesla's current sedan lineup is a little weaker than expected.