According to a report, the number of registrations for the new Model S sedan in California in the second quarter plummeted 54% to only 1,205.
The latest data shows that with electric car manufacturer Tesla increasingly relying on the lower-priced Volvo version of the electric model 3, its high-end models Model S and Model X sales in the company’s most important US market, California, has been hit hard.
The decline in sales of Model S and SUV Model X threatens Tesla’s growth targets and profit ambitions. The company must rely more on the cheaper Model 3 to make up the difference. Dominion Cross-Sell, a research firm that compiled data in California’s motor vehicle records, reported that California’s new model S sedan registrations in the second quarter plummeted 54% to just 1,205.
According to Edmunds.com, California is the most powerful indicator of Tesla’s largest US market, accounting for 40% of the US Model S registration last year.
New data from research firm Dominion Enterprises suggests that the Model S, which has changed the way car buyers view electric cars, is losing its brilliance. Tesla is increasingly relying on the smaller Model 3, which starts at about $35,000, less than half the price of the most basic Model S.
In the second quarter, Tesla’s expensive Model X SUV registration in California also dropped by about 40%. In contrast, the number of Model 3 registrations in the state has almost doubled to 16,372.
Tesla announced its second-quarter results on Wednesday, which may help reveal the decline in sales of its high-end models and its impact on sales and profits. Tesla did not announce sales by state. On Tuesday, Tesla shares closed at $260.17, up 1.8%. The stock has fallen 14% in the past year, but has risen 45% from its June low.
The decline in sales of old-fashioned high-end cars threatens Tesla’s business pillar. Its chief executive, Elon Musk, said the company’s business is based on the assumption of delivering a total of 100,000 Model S and Model X per year. In the first half of this year, Tesla delivered 29,750 Model S and Model X, down 33% from 44,100 in the same period last year.
Analysts surveyed by FactSet on average expected that the total delivery volume of Model S and Model X will drop by 30% this year compared to last year, when the company delivered a total of about 99,400.
Concerns about whether Tesla’s demand for cars has peaked occurred after the sharp decline in sales in the first quarter. These concerns were alleviated as the smaller Model 3 resumed growth in the second quarter. Despite this, Model S and Model X were still struggling during the first six months of the year, raising questions about whether Model 3 is eroding Tesla’s existing business.
In the first half of the year, Tesla delivered a total of 158,000 vehicles in three models. Compared with the record second quarter, it needs to accelerate sales in the last two quarters to achieve its year-end goal. The company’s goal this year is to deliver at least 360,000 units worldwide, an increase of more than 45% from last year.
David Whiston, an analyst at Morningstar Research Services, said: “The key is cash flow. People will pay attention to whether Tesla will increase sales in exchange for profit growth in the second quarter. In addition, whether the sales of Model 3 is enough to offset the total sales of Model S and Model X that fell by 21%.”
Mask’s bet on Model 3 will transform the company from a niche luxury car manufacturer to a large car manufacturer selling cheap electric cars. He expects to sell millions of cars a year, a huge leap from the tens of thousands of cars sold two years ago. As Tesla sells cheaper cars, analysts are increasingly worried about the company’s ability to maintain higher margins.
Analysts on average predicted that after deducting credit sales revenue, Tesla’s second-quarter profit margin would fall to 20.1%, compared with 24.7% in the fourth quarter of last year. However, some analysts believe that Tesla has made progress in reducing costs and can avoid a sharp drop in sales.
The Model S debuted in 2012 and received a warm evaluation and helped Tesla to challenge the luxury cars offered by Daimler AG’s Mercedes-Benz and BMW AG. . Tesla regularly updates the car’s software, improves front-end technology, and makes other upgrades. Tesla began offering a model that can travel nearly 600 kilometers on a charge earlier this year.
Shane Marcum, vice president of research firm Dominion Enterprises, which publishes the registration report, said that part of Tesla’s problem may be that the cheapest Model S is competing with the most expensive Model 3. Previously, the price difference between the two models was about $6,000, and the gap has widened to about $16,000.
The most expensive version of Model 3 is now priced at almost $64,000, while the fully loaded version is priced at about $69,000. Tesla raised the price of the standard Model S to $79,990 last week. By upgrading the previous $20,000 Badicous Mode as part of the performance release, it also effectively reduced the highest-priced Model S from approximately $130,000 to approximately $113,000.
Simplifying the product range can help Tesla reduce the manufacturing complexity of its Fremont, Calif., plant before starting production of the Model Y compact SUV next year.
David Packham, 42, said he has been a happy Tesla owner since he bought the Model 3 in March. The man in Naples, Fla., initially sought to buy the basic Model S, but changed his mind after realizing he could get a similar choice with the fully equipped Model 3.
But Parkham said that if Tesla introduces an upgraded sedan with longer cruising range and more luxurious interiors, he will eventually replace Model 3 with a larger Model S. In recent days, Musk has tried on Twitter to quell rumors that the Model S will undergo major updates, although the company has hinted that it will launch electric vehicles with a cruising range of more than 640 kilometers.