“Tesla’s first-quarter deliveries plummet as the electric car maker faces challenges shipping Model 3 overseas for the first time,” writes The Wall Street Journal (April 4, 2019). Tesla said new-vehicle deliveries in the first quarter fell 31% from the previous three months as it struggled to ship its Model 3 compact car to customers in Europe and China for the first time. The auto maker delivered about 63,000 vehicles in the latest period, worse than analysts’ already-lowered expectations of 73,500 units.
Concerns of a slow start to deliveries in 2019 have raised questions about the company’s ability to meet ambitious sales targets after it struggled for 2 years to increase production of the Model 3, its lowest-price vehicle. Tesla had slashed the Model 3’s starting price three times during the quarter, finally reaching its long-promised base of $35,000. (The phaseout of U.S. tax credits went into effect recently, dropping to $3,750 from $7,500. Credits end at the beginning of 2020). Tesla delivered 50,900 Model 3 cars in the first quarter. Sales of the more-expensive Model S car and Model X SUV fell to 12,100 from 27,602 during the fourth quarter.
Getting the Model 3 to customers has bedeviled the company ever since it cranked up production. As Tesla’s U.S. sales approach those of BMW and Mercedes, the company has encountered a host of logistical issues, from delivery and servicing of a growing fleet to balancing supply and demand. The delivery challenge was especially pronounced when Tesla began delivering the Model 3 overseas. Tesla has one assembly factory, located in Calif. It traditionally dedicates the early parts of each quarter to shipping vehicles overseas to account for travel time.
The company has begun construction on a factory in China to build the Model 3 and future Model Y compact-SUV for that market, and intends to open an assembly plant in Europe. The challenge for Tesla is balancing the costs of ambitious growth plans with maintaining profitability. Shortages of Europe-specific parts and a printing error were making it harder to get vehicles to customers.
Classroom discussion questions:
- What are the major OM problems Tesla faces?
- Why are sales falling?