Tesla sales jump 83% from a year ago on tax credits, broader adoption

Tesla deliveries in the second quarter rose 83 percent from a year ago after the company cut prices several times on its four models of electric cars and buyers took advantage of the US government’s tax breaks.

The Austin, Texas, maker of electric vehicles, solar panels and batteries said Sunday it sold a record 466,140 vehicles worldwide from April through June, nearly double the 254,695 sold during the same period a year earlier. The vast majority of sales were the popular Model 3 and Y versions of Tesla.

But the price cuts, for both special orders and existing inventory, have raised questions from analysts who expect the cuts to reduce Tesla’s profit margins when it reports second-quarter earnings on July 19.

Tesla sales were better than Wall Street expected. Analysts surveyed by data provider FactSet had expected delivery of 445,000 for the quarter.

The company produced 479,700 vehicles in the April-June period, some 13,000 more than it sold, indicating inventories may be building.

The second quarter sales brought Tesla to nearly 900,000 vehicles in the first half of this year. The company sold 422,875 vehicles from January through March.

CEO Elon Musk has predicted that sales will grow by about 50 percent annually in the near future.

To reach that figure for the full year, the company would have to sell 1.97 million vehicles. Analysts expect Tesla to drop slightly, delivering 1.82 million vehicles for the year.

Tesla cut US prices at least four times during the quarter for cars ordered by customers. Larger price declines in store inventory appeared at the end of the quarter in mid-June. The company reduced the prices of some Model 3 cars by more than $3,000. Price cuts for the Model X SUV came to over $10,000, and the company threw in three years of free shipping for the S and X sedans. The Model S sedan saw cuts of about $7,500.

Prices have even been slashed on inventory of the Model Y small SUV, Tesla’s biggest sale, by as much as $1,570 in late June to move the vehicles.

But sales were almost certainly boosted by the $7,500 US government tax credit from the Inflation Control Act that was available on nearly all Tesla models during the second quarter.

Price cuts have boosted sales, especially in China, said Wedbush analyst Dan Ives, but there will be a price to pay in lower profit margins. He expects Tesla’s margins to bottom out over the next two quarters, to return to normal levels next year.

Morningstar analyst Seth Goldstein said: We’ll likely see price cuts hit margins.

Tesla Motors’ gross margin (excluding regulatory credit revenue), which is the company’s total profit compared to revenue, was up 30 percent early last year. But as interest rates rose, Tesla began cutting prices last year, and the margin fell to 19 percent in the first quarter. Analysts expect 16.9 percent from April to June, according to FactSet.

Ives said that Tesla stock in the US is starting to grow. He said that this will be a kind of burden in the second half of the year.

He said deliveries aren’t the entire Tesla story. With General Motors, Ford, Rivian, and Volvo announcing they have joined Tesla’s charging network and begin using its plug, Tesla will have millions in charging revenue.

I think investors are starting to appreciate the sum of the story of the parts.”

Tesla shares have more than doubled in value this year, largely due to news that General Motors and Ford are joining the company’s charging network. Tesla shares closed Friday at $261.77.

Goldstein expects Tesla to ramp up production at new factories in Austin, Texas and Germany, which will reduce the company’s fixed costs. And he said I think we’re probably looking at the bottom in the first half of this year, and then margins will recover a little bit from there.