By Tim Higgins 

Tesla Inc. reported Model 3 sedan deliveries that missed Wall Street's estimates and said it would cut prices on all its vehicles, news that drove shares of the electric car maker down more than 8% on Wednesday.

Tesla cut prices by $2,000, moving the starting cost of the Model 3 -- the vehicle it is banking on to reach the mass market -- to $44,000. The move, in part, was to make up for the elimination of federal tax incentives for Tesla vehicles that begin to phase out this year, it said.

The company has been working toward offering the Model 3 compact sedan at $35,000, part of Chief Executive Elon Musk's bet Tesla can make a more affordable vehicle as part of his vision for broader adoption of electric vehicles in the auto industry.

The car maker said total deliveries, fueled by increased production and sales of the Model 3 sedan, more than tripled to 90,700 in the fourth quarter, from 29,870 a year earlier. Analysts surveyed by FactSet, though, had expected total deliveries, including the more pricey Model S large sedan and Model X sport-utility vehicle, of 92,000 vehicles.

Fourth-quarter deliveries of the Model 3 rose to 63,150 from 1,550 a year earlier. Analysts had expected 64,900.

Tesla shares sank $27.11 to $305.69 after the company missed analysts' expectations on Model 3 deliveries as well as its own guidance on full-year deliveries of the Model S and Model X.

Full-year total deliveries reached 245,240. In 2017, the auto maker sold 102,807 vehicles after struggling to increase production of the Model 3.

Producing the Model 3 has proved harder than Mr. Musk had expected, and Tesla missed several self-imposed deadlines to ramp up production to a rate of 5,000 a week. The chief executive had promised to increase sales and production of the sedan in the fourth quarter, urging potential buyers in recent weeks to take advantage of a $7,500 federal tax credit that drops to $3,750 for its vehicles in the first half of this year, and eventually zero by next year.

Wall Street might be taking the price cut as a negative sign, said David Whiston, an analyst at Morningstar Research Services. The move "makes it seem like a price cut is necessary to keep demand up" for the Model 3, he said.

Tesla in October surprised Wall Street with a record profit in the third quarter, thanks to increased production of the Model 3. Mr. Musk said the company had reached the point where it can be sustainably profitable going forward. His vision of personal transportation has excited investors, sending shares to levels that give the company a greater market value than General Motors Co., despite Tesla never having turned an annual profit and selling a fraction of the cars.

Mr. Musk has been trying to spend less making the Model 3 so Tesla can lower its price. UBS Securities LLC had estimated that a $42,000 Model 3 would eke out a $670 operating profit, while the then-lowest-cost version at $49,000 would make more than $3,000. A $35,000 version was estimated at the time to lose about $2,300 a car.

For Tesla and its chief executive, 2018 marked a challenging year. While the company more than tripled global deliveries, the number was far shy of what Mr. Musk has predicted in recent years. In 2016, he had suggested he could make as many as 200,000 Model 3s in 2017, while ramping up production on all its vehicles to 500,000 in 2018.

Even as Tesla became the rare new U.S. auto maker to survive beyond infancy, its cash levels ran low as grappled with manufacturing delays.

Mr. Musk, meanwhile, didn't help himself with sometimes erratic public behavior. He appeared to smoke marijuana during a live interview and announced on Twitter in August he had secured funding to possibly take the company private at $420 a share.

The Securities and Exchange Commission said he misled investors with those comments, and sought to strip him of serving on publicly traded companies as a director or officer. Mr. Musk settled the SEC claims, retaining his CEO role at Tesla but giving up his title as chairman.

Last week, Tesla added Oracle Corp. chairman Larry Ellison -- a close friend of Mr. Musk -- and Kathleen Wilson-Thompson, global head of human resources for Walgreens Boots Alliance Inc., to its board as part of the SEC settlement. The move followed the elevation to chairman in November of Robyn Denholm, a veteran finance executive who joined the board four years ago.

All the while, Tesla was trying to keep pace after finally reaching its 5,000-a-week production goal for the Model 3 during the final seven days of June, In the fourth quarter, Tesla built a total of 61,394 Model 3 sedans, or on average 4,723 a week during the period's 13 weeks.

The company also slightly missed its goal of delivering a combined total of 100,000 Model S and Model X vehicles during the year. Tesla delivered 13,500 Model Ss and 14,050 Model Xs in the fourth quarter, raising the total for the year to 99,394 compared with about 100,000 in 2017.

--Kimberly Chin contributed to this article.

Write to Tim Higgins at Tim.Higgins@WSJ.com

 

(END) Dow Jones Newswires

January 02, 2019 11:48 ET (16:48 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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