Tesla shares drop after deliveries report raises investor concern that more price cuts are coming

Tesla shares fell more than 7% on Monday after the company’s quarterly supply report led some investors to worry that more price cuts will be needed to boost sales, squeezing margins.

Over the weekend, Tesla reported first-quarter deliveries of 422,875 electric vehicles and production of 440,808 vehicles. The record numbers represent a 4% rise in shipments from the previous period and followed multiple price cuts in the US, China and Europe.

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Some of the reductions in the US were implemented in part to allow Tesla and its customers to take advantage of tax credits available under the Inflation Reduction Act. But one lingering concern is that increased competition will force the automaker to keep cutting prices if it wants to attract buyers as new EVs continue to hit the market.

“Many investors believe that Tesla’s recent price cuts reflect a structural cost advantage that will allow it to put pressure on competitors and capture massive volume and dominate the EV market,” Bernstein analyst Tony Sacconaghi wrote in note after delivery report. “We argue that price cuts have and will erode industry profitability (including Tesla’s), but that incumbents have deep pockets and are unlikely to budge.”

Bernstein has a $150 price target on the stock, well below the current price of just over $193. Sacconaghi said: “The key question for investors is what could margins be on the back of a significant price cut but improving commodity costs?”

Tesla’s first-quarter deliveries missed Wall Street expectations, according to a consensus compiled by FactSet. However, the numbers are consistent with numbers compiled by Tesla and sent by the company to some shareholders before the report was released.

Analysts had expected Tesla to report deliveries of about 432,000 vehicles for the quarter, according to FactSet. Estimates ranged from 410,000 to 451,000. An independent researcher widely followed by Tesla fans and bulls, who uses the Twitter handle @TroyTeslike, expected deliveries of about 427,000.

Tesla said in its email to shareholders that analysts expected deliveries of about 421,500 vehicles, based on a consensus of 25 analysts tracked by the company.

For 2023, Tesla has previously said it expects to produce 1.8 million cars and has hinted that it intends to deliver around that amount. Company executives said they are aiming for an average of 50% annual growth in production volume and sales over a multi-year horizon.

Achieving that level of growth will likely require further price cuts, some analysts said.

According to Barclays’ Dan Levy, who has a neutral rating on the stock and a $275 price target, the build-up in vehicle inventories has been an ongoing trend over the past three quarters. He wrote that “further price reductions are likely necessary,” especially as the company ramps up production at new factories in Austin, Texas, and outside Berlin.

— CNBC’s Michael Bloom contributed to this report

WATCHING: Full CNBC interview with Bernstein’s Tony Sacconaghi