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Aided by significant catalysts that played a major role in pulling forward the demand for Tesla EVs, the company just reported another quarter of record deliveries. However, when looking under the hood, the EV giant appears to be contending with a persistent demand weakness – hardly a surprise, given the deteriorating macroeconomic conditions in the US and the EU.

As of Q4 2022, Tesla had an annual production capacity of 1.9 million units. The company continues to aggressively increase its annual production capacity by ramping up its Berlin, Austin, Shanghai, and Fremont gigafactories.

Quick note re $TSLA's delivery number:

On the back of my envelope, Tesla now probably makes only around $7000 net on each incremental car sold (and "loses" $7000 on each car NOT sold).

With 3.2B shares outstanding, that means ± 15,000 cars is only around .03/share in earnings.

— Stanphyl Capital ❌ (@StanphylCap) April 2, 2023

In order to combat growing demand weakness, Tesla has aggressively slashed the prices of its EVs in recent weeks, sacrificing its industry-leading margins to maintain sales momentum. The prices of the company’s bread-and-butter Model 3 and Model Y EVs have been slashed by up to 20 percent. Moreover, in early March, Tesla reduced the base price of its Model S by 5.3 percent and that of Model X by 9.1 percent in the US. Following these hefty price cuts, the Plaid versions of both models are now priced at $109,990.

Hi everybody. Here are my final Tesla production & delivery estimates for Q1 2023 in a format that's easy to compare to the actual numbers Tesla is expected to release on Apr 2nd. I'm aiming for less than 3% error

I estimate,

• 445,920 production

• 427,000 deliveries

Part 1/3 pic.twitter.com/we9YyPvVgK

— Troy Teslike (@TroyTeslike) March 31, 2023

Ahead of today’s much-anticipated Q1 2023 delivery report, the consensus estimate for Tesla’s quarterly deliveries was pegged at 420,000 units. In line with Tesla’s tradition of beating consensus estimates, Troy Teslike pegged a delivery estimate of 427,000 units for the quarter. Similarly, Barclays expected Q1 2023 deliveries to materialize at 425,000 units.

Tesla Produces 440,808 Vehicles in Q1 2023, and Delivers 422,875 Units

This brings us to the crux of the matter. Tesla has just reported that it produced 440,808 units during the first quarter of 2023. Moreover, in what constitutes another record, the company managed to deliver 422,875 units during the pertinent period.

Assuming $TSLA 1Q delivs of 424K and 1Q production of 445K, days of finished goods inventory would jump to 17 in 1Q from 13 in 4Q and vs 3 in 2022/1Q. While no one wants TSLA to go back to 4-6 month customer waits, a big diff between production and delivs could raise concerns. pic.twitter.com/Boz06XbLe1

— Gary Black (@garyblack00) March 30, 2023

Under the hood, do note that Tesla’s inventory has increased materially in Q1 2023. At the end of Q4 2022, the company’s Days of Finished Goods Inventory metric stood at 13.51, based on an inventory level of around 73,000 units and an average daily delivery rate of 5,403.71 vehicles (assuming 75 working days in a quarter). For Q1 2023, Tesla’s Days of FG Inventory has increased to 16.13, based on a new inventory level of 90,933 units and an average daily delivery rate of 5,638.33.

Critically, this increase in the Days of FG Inventory metric has taken place at a time when Tesla received a tailwind from several catalysts. Obviously, the significant reduction in the retail price of the company’s EVs remained one of the most important demand catalysts. However, during the quarter, Tesla also benefitted from the one-time exemption to the IRS’ stringent eligibility criteria for the $7,500 federal tax credit on the purchase of EVs. As we noted in a recent post, Tesla has informed its employees that it expects to lose the $7,500 tax credit on the Standard Range (SR) Model 3 amid continuing revisions and clarifications to the battery production and material sourcing guidelines from the IRS. This is because the SR Model 3 is built in Fremont, California, but its LFP battery packs are sourced from China, which runs afoul of the hard-coded requirement of sourcing critical battery components from within North America. The loss of this tax credit will effectively increase the price of the SR Model 3 by around 21 percent.