Tesla sales slow as pandemic hampers production

Tesla said on Saturday April-June vehicle deliveries fell 18% from the first quarter of the year, a rare slowdown for the company caused by production issues in China.

Tesla sells more electric cars than any other company and until recently was growing rapidly in China, Europe and the United States as rising gas prices increased battery appeal. The company continues to weather supply chain turmoil better than rivals like General Motors and Toyota, both of which reported sharp declines in sales on Friday.

Demand for cars, especially electric cars, is plentiful, but shortages of semiconductors and other key components are forcing buyers to wait several months for deliveries.

Tesla delivered more than 254,000 vehicles in the quarter compared to 310,000 in the first quarter. It was the first quarterly decline in deliveries since the start of 2020, when the onset of the pandemic sapped global car sales.

Tesla on Saturday suggested deliveries could rebound in coming months as it overcomes supply chain issues, saying it built more cars in June than at any time in its history.

Pandemic-related shutdowns and component shortages have hampered operations at the company’s Shanghai factory. China has the largest auto market in the world and accounts for around 40% of Tesla’s sales.

Production in China was “an absolute disaster through April and May,” Wedbush Securities analysts Daniel Ives and John Katsingris said in a note to investors last week.

Despite the slowdown in deliveries, Tesla is still doing better than other automakers. Compared to the first quarter of 2021, Tesla deliveries increased by 26%. That’s far better than General Motors, which said Friday its second-quarter U.S. new-vehicle shipments were down 15% from a year earlier. Similarly, Toyota Motor announced a 23% drop in sales in the United States.

Tesla has more orders than it can fill, but demand could slow if the global economy hits a speed bump. Tesla chief executive Elon Musk warned in an interview with Bloomberg News in June that a recession was “inevitable at some point” and “more likely than not” would come soon. He told staff that the company would reduce its salaried workforce by 10%.

Tesla looks unlikely to match its growth from last year, when deliveries rose 90% to 940,000 cars. A 50% increase for 2022 is more realistic, Wedbush analysts said.

That, they said in a note on Saturday, is still “an impressive feat” given that China has been “essentially shut down for two months.”

The slowing growth rate is one factor that has caused investors to reassess Tesla’s chances of dominating the automotive sector. Tesla shares have fallen more than 40% from their peak in November, even as more buyers choose electric cars because of their superior fuel efficiency.

According to local utility rates, an electric car costs much less to run than a fossil fuel vehicle. A standard range Tesla Model 3 gets the equivalent of 142 miles per gallon and costs $450 a year for fuel, according to the Environmental Protection Agency. By comparison, a Honda Accord with a gas engine gets 33 mpg and costs $2,200 a year on fuel.

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