While everybody is focused on total delivery numbers, sales of Tesla’s higher end Model S sedan have taken a huge hit in California, according to the Wall Street Journal. This is likely result of the company focusing heavily on selling its lower priced Model 3. The shift in product mix could wreak further havoc for Tesla’s margins and eventual profitability goals.
This puts financial pressure on Tesla as the cheaper Model 3 is now tasked with trying to make up for falling sales of the higher margin models.
Registrations of new Model S sedans in the second quarter plunged 54% to 1,205 in California. The state is seen as a strong indicator of demand because it is Tesla’s largest US market, representing 40% of all Model S registrations in the country last year.
Musk had built his business on the idea being able to deliver a combined annual total of 100,000 Model S and Model X vehicles. So far, in the first half of this year Tesla has delivered just 29,750 of the units, combined, which is down 33% from 44,100 last year.
Analysts are expecting total deliveries of the two models to drop 30% this year, compared to last year’s 99,400 total.
The plunge also says that the Model S could be losing its luster and may be due for a redesign. Redesigns, of course, require capital, which is at a premium at Tesla. Musk himself said earlier this month that no major refresh of the Model S was on its way.
There is no “refreshed” Model X or Model S coming, only a series of minor ongoing changes. Most significant change in past few years was to use high efficiency Model 3 rear drive unit as S/X front drive unit. That went into production 3 months ago.
— Elon Musk (@elonmusk) July 9, 2019
Tesla is scheduled to report second-quarter results on Wednesday that could shed more light on the product mix going forward. The company still says it is targeting at least 360,000 total global deliveries this year, which represents a 45% rise from last year.
The cheapest Model S continues to compete with the most expensive Model 3. Until recently, the price difference between the two was just $6,000. Now, it’s about $16,000:
The most expensive Model 3 version now sells for almost $64,000, down from a fully loaded version going for about $69,000. Tesla last week increased the cost of the standard Model S to $79,990. It also effectively lowered the highest-priced version of the Model S to about $113,000 from about $130,000 by making the previous $20,000 Ludicrous Mode upgrade part of the performance version.
David Whiston, an analyst for Morningstar Research Services said: “The key is cash flow, and people will look for whether they traded profit for volume in Q2. Also, did they get enough [Model] 3 volume to offset the 21% decline in combined S and X sales.”
via ZeroHedge News https://ift.tt/2Z9cbOv Tyler Durden