Tesla sidesteps Q3 slump to score crucial victory

Tesla has ended its two-quarter losing streak, defying a cooldown in the overall car market to score a notable sales increase.

Driving the news: Tesla’s Q3 deliveries came in just behind Wall Street expectations but still improved on both a yearly and quarterly basis. Here are the key insights from its report:

• Deliveries rose roughly 6.4% year-over-year to 462,890 units, driven by growth across its model types. However, those numbers were roughly 100 units short of passing consensus estimates.

• While sales were still dominated by the Model 3 and Model Y, deliveries of the pricier Model S and Model X accounted for a slightly higher percentage of sales this year (5%) compared to 2023 (3.7%).

• Over-production continues to be a challenge for Tesla. The company built 6,906 units more than it sold during Q3, producing a total of 469,796 vehicles. This is less than previous quarterly surpluses but still high compared to the company’s average.

Zooming out: Tesla’s solid performance is a change of pace from earlier this year when the company faced its first two consecutive quarters of lower deliveries in almost a decade. However, its victory in Q3 is especially noteworthy when compared to the overall car market.

• Most automakers saw lower demand between July and September than they did in 2023, with the few exceptions seeing relatively mild growth.

• Yet, while overall sales were down, electric vehicle adoption continued to surge across the U.S., unaffected by the market’s downturn. In the case of Toyota, EVs (including hybrid and fuel cell models) accounted for almost half of all sales in September.

• The resiliency of EVs could help explain how Tesla was able to succeed during a time when most automakers were struggling, despite the perceived challenges with electric car adoption.

Zooming in: At the same time, Tesla’s sales success didn’t come cheap. The company is still being forced to leverage heavy discounts and incentives to drive demand.

• For instance, last month it launched zero-down payment options for the Model 3 and Model Y, both compatible with an extremely low APR offer (this promotion ended September 30). Even more deals, such as a referral program, remain in place after being introduced earlier in the year.

• These tactics may have driven up sales for the quarter, but their potential impact on the company’s profitability and shareholder confidence can’t be discounted. Tesla stocks have already trended downward following the release of its Q3 deliveries report due to disappointment on missing Wall Street forecasts.

• It’s also worth noting that competing EV makers, from BYD to Kia, have also been relying on steep discounts to drive EV sales in recent months. This could further explain why the electric car segment continued to grow despite Q3’s colder market.

Bottom line: With three months left to go this year, it’s unlikely Tesla will beat its 2023 numbers. However, while it’s too early to tell if the company’s troubles are over, it was able to secure a victory during a time when most of its competitors were struggling. Maintaining that momentum into 2025 will likely be critical to the brand’s continued dominance in the EV market.

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