Why Tesla Model S Sales Are Crashing

Tesla just released its first quarter delivery and production report for 2019, and it does not look good for the Model S. 

One of the most noteworthy takeaways from the report was a drastic decline in the sales of Tesla’s Model S and Model X electric vehicles.  Tesla produced only 14,150 of them over the course of the quarter (the sales were uncharacteristically lumped together instead of separated by model), a 57% drop from last quarter.  Deliveries also fell to 12,100 units.

So what happened?  Here’s E For Electric’s take on the matter.

Tesla Model S Outdated Compared to the Model 3

Tesla began manufacturing the Model S in 2012, and there haven’t been a whole lot of updates to it since then.  Besides a minor facelift when the Model X was released, Tesla’s flagship sedan still competes in the electric car market with a nearly 7-year-old interior and exterior, and that’s a huge deal.  There’s been talk of an interior refresh for the Model S in the past, but Tesla has not said much on the subject in recent months. 

Buyers could be waiting on this refresh and a much-needed hardware upgrade before pulling out their wallets to purchase a new Model S, or they could be just going straight for the Model 3 as an alternative, effectively cannibalizing sales.  The Model 3 boasts a better battery and range, autopilot upgrades, and a generally more up-to-date look with a lower price tag.   

Tesla First Quarter Prices Changing Often

The end of the US Federal Tax credit for electric car purchases at the end of 2018 also likely played a part in the decline of Tesla Model S sales.  Many purchases of the higher-end vehicle likely took place before this happened, leaving sales in the first quarter of 2019 weaker than they should have been. 

So Tesla started off 2019 by reducing the price of its cars by $2,000 to offset the lost tax credit.  Then things just got weird.  A change in trims and battery styles on the Model S and Model X led to a $1,000 price decrease starting January 29th.  Then Tesla took another $1,100 off of its Model 3 on February 5th.  With the launch of the base Model 3 on February 8th, we saw a 6% cut in prices across the board.  But then an expected 3% price increase hit most models on March 21st, and three days later the price of the Model Y rose by another $1,000. 

With prices bouncing around all over the place, it is no great wonder that customers might be hesitating to buy, if one of these changes might suddenly devalue their brand new car by several thousand dollars. 

Used Tesla Model S Can Be A Better Buy

If you check out Tesla’s used inventory and takes a look around, you will quickly notice that you can easily buy a used Model S starting around $30,000.  Say you want to buy that same model with a 4 year / 50,000 mile warranty (just like a new car) with under 20,000 miles on it; you could make that happen for around $50,000. 

Considering how quickly cars depreciate, spending $85,000 for a brand new Model S does not make a lot of sense when you could buy one gently used for a whole lot less.

International Sales Affecting Tesla’s First Quarter Sales

As stated in Tesla’s Q1 2019 delivery release: “Due to a massive increase in deliveries in Europe and China, which at times exceeded 5x that of prior peak delivery levels, and many challenges encountered for the first time, we had only delivered half of the entire quarter’s numbers by March 21, ten days before end of quarter. This caused a large number of vehicle deliveries to shift to the second quarter. At the end of the first quarter, approximately 10,600 vehicles were in transit to customers globally.”

Considering that all of Tesla’s electric vehicles are produced in the U.S., it is no great wonder that providing supply for international demand via boat slows things down.  It seems like orders are continuing to come in robust numbers from both China and the European Union, which is good for Tesla.  But they need to be able to deliver them in a timely manner, otherwise there are bound to be some quarters where the delivery numbers just look sad, like they did in this past quarter.

What is the solution?  Tesla is already working on one huge step: their Gigafactory 3 in China.  Now if only they could build one in Europe as well, then they would be able to reduce international delivery time and ultimately deliver more cars. 

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Ultimately, what is the takeaway from Tesla’s first quarter report?  It seems most prudent that Tesla take a more realistic look at expectations with regards to the sales of the Model S.  Right now the mass market is demanding the Model 3, and while it appears unlikely that the Model S will go anywhere anytime soon, its sales numbers cannot be expected to be as high as they once were.