Tesla cuts vehicle prices by $2000 as 4Q deliveries fail to reach expectations

Shares of the electric car and solar panel maker Tesla Inc. reportedly dropped on Wednesday, January 2, after the company cuts vehicle prices by US$ 2,000 and announced fourth-quarter sales figure that fell short of Wall Street estimates.

Before the markets opened, the company said that it delivered 245,000 electric cars and SUVs last year, nearly as many as all previous years combined. But yet it would cut prices of its three models by U$ 2,000 so as to help customers handle the gradual phase-out of federal electric vehicle tax credits. On January 1, the federal credit for Tesla buyers dropped from $7,500 to $3,750 and would gradually phase out this year, as expected.

The company’s overall deliveries in the entire year of 2018 matched Wall Street estimates. Only its figures for the fourth quarter did not reach expectations. From October to December, Tesla reportedly delivered 90,700 vehicles.

Tesla shares plunged 7.2 per cent in mid-day trading to US$308.94. In the past year, it traded from a low of $244.59 to a high of $387.46.

The company is now approaching an important phase of its business and will have to decide whether to cut production to match what appears to be waning demand, or discount its vehicles to stimulate sales as other automakers do, Gartner analyst Michael Ramsey said.

"The cars are quite expensive and they're still electric vehicles. They don't appeal to everybody," he said, adding that not everyone is interested in the limited range or having to pay extra for a home charging unit.

For the full year, Tesla produced 254,530 vehicles, 9,290 more than it delivered. However, the company did not reveal the number of vehicles it had in inventory at the end of the year.

Tesla said it sometimes stored 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 on Wednesday.

Tesla’s 2018 deliveries included almost 146,000 Model 3 lower-priced cars and another 99,000 of the Model S sedan and Model X SUV, both of which can easily top $100,000. The Model 3 starts at $35,000 but still can't be purchased for under $45,000.

In the third quarter, the company delivered on CEO Elon Musk's promise to make a net profit after years of losses. The company earned $311.5 million in three months ending in September, against a loss of $619 million at the same time last year.

At the end of September, the company reported $9.7 billion in long-term debt and another $3.6 billion in accounts payable owed to parts suppliers and other companies. Tesla reportedly ended September with $2.9 billion in cash.