Tesla shares sink after deliveries fail — and here’s why Wall Street is alarmed

Tesla reported a smaller-than-expected rise in third-quarter shipments on Wednesday as incentives and financing deals failed to lure enough customers for its aging electric vehicles, sending shares down more than 6%.

That puts the EV maker — already grappling with growing competition and slowing EV demand — at risk of its first drop in annual shipments after years of rapid growth.

Shares of the world’s most valuable auto maker were on track to erase all gains made so far this year by the end of Wednesday’s session. The stock had risen in recent weeks on investors’ hopes for Tesla’s October. 10 event in Los Angeles where it is expected to unveil its robotaxi product in an effort to shift the focus to AI-powered autonomous technologies.

Tesla has cut prices and expanded incentives, including insurance offers and zero-interest financing, particularly in China, which accounts for a third of its sales.

That helped boost sales in China in July and August, according to data from the China Passenger Car Association. Analysts believe China’s strength continued in September, but US and European demand was subdued. “We believe China showed relative strength this quarter, but was offset by weakness in the US and Europe,” Dan Ives, an analyst at Wedbush Securities, said in a note.

Tesla delivered 462,890 vehicles in the July-September period, up 6.4% from a year ago, marking its first quarterly increase after two straight quarters of declining sales. But that was less than the 469,828 shipments expected on average by 12 analysts polled by LSEG.

While CEO Elon Musk has said he expects the company to increase deliveries in 2024 from the record 1.8 million vehicles it delivered last year, Wednesday’s numbers make that “extremely difficult,” said Sandeep Rao, a senior researcher at Leverage Shares. , an investment management. companies with about $1 billion in assets, including Tesla and other EV makers.

Tesla now needs a record 516,344 vehicle deliveries in the fourth quarter to prevent a decline in 2024 sales.

“There’s only so much Tesla can do with price cuts and incentives while not offering new vehicles to customers,” Rao said, adding that rivals, particularly in China, have launched a slew of new models.

Price cuts and incentives have also squeezed the company’s profit margins — consequences that investors and analysts have said could be damaging in the long run.

Some analysts said a rising return marked a positive sign for Tesla and showed that some of the incentives it had rolled out to boost demand were working.

“Taking a step back, shipments coming back to growth was the most important thing to come out of today’s numbers,” said Hargreaves Lansdown senior equity analyst Matt Britzman, who holds Tesla shares.

Tesla delivered 439,975 Model 3 and Model Y, and 22,915 units of other models, which include the Model S sedan, Cybertruck and Model X premium SUV.

It produced 469,796 vehicles during the July-September period.

Shipments were higher than those of rival BYD, which delivered 443,426 battery electric vehicles in the third quarter.