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Tesla's disastrous first quarter hints its car may not be the future of driving

Brian Sozzi
Editor-at-Large

If Tesla’s nifty-looking, expensive electric cars were truly a look into the future of driving — wouldn’t people be tripping over themselves to buy one?

That didn’t exactly happen in the first quarter, and it may not happen this year. And as a result, a key plank in the Tesla (TSLA) investment thesis — that its futuristic cars are always in high demand — has been yanked out from underneath those bulls obsessed with Tesla’s stock.

Tesla’s year just got tougher

Wall Street was on high alert for a weak start to the year for Tesla as it worked to get its new Model 3 to China and Europe. Further, Tesla rushed to log sales in the fourth quarter to take advantage of the full $7,500 federal tax credit for electric cars. That tax credit has since been cut in half for sales done in 2019, making an already expensive ride costlier.

What investors got was even more of a dud.

Tesla said Wednesday evening it delivered about 63,000 vehicles to customers in the first quarter, a stunning 31% drop. The figure is comprised of 50,900 Model 3 sedans and a meager 12,100 combined Model S and Model X SUVs.

It marked the first quarter-over-quarter fall in Tesla’s sales in about two years.

Tesla’s stock plunged as much as 11% in Thursday trading.

Wall Street quickly — and rightly — came out and pounded the company. Goldman Sachs reiterated a Sell on the stock, saying consensus estimates need to decline and worries about demand may only grow. Meanwhile, RBC Capital Markets said the sales shortfall could lead to $1 billion in lost revenue for the year.

Let the speculation on a Tesla cash raise start back up.

Are Tesla’s cars overpriced?

Citigroup researchers point out Tesla’s stock has long been valued as if it’s selling a look into the future of driving. Hence, investors have usually been willing to overlook Tesla’s sales stumbles as it works to ramp production and stoke demand.

But Tesla’s disastrous first quarter (which includes mixed messages around store closures and profitability) suggests consumers think Tesla’s electric cars are overpriced versus their utility. In other words, they are more carefully weighing the options of going fully electric via Tesla versus a range of more affordable options in the category (including hybrids).

While there are some Tesla specific factors in play here such as its ongoing production problems, the steep fall-off in demand to kick off 2019 is likely to be a greater weight to Tesla’s stock near-term. Without steady demand for Tesla’s cars, it could set off a host of negatives for Tesla such as debt raises and more price cuts on its cars.

Not a good bullish setup for a cult favorite.

Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi

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