Tesla delivers 90,700 EVs in Q4 2018, drops the price in the United States as it gears up for Europe.

Tesla has kicked off its new year festivities with a bang by registering 1,078 new European Model 3 VINs. The electric car maker delivered a stunning 90,700 vehicles in Q4-2018, 8% more than the all time high in Q3.

Q4-2018 Deliveries

Model 3: 63,150

Model S: 13,500

Model X: 14,050

Tesla Model 3 gets ready for Europe

As Tesla inches closer to the morale-boosting milestone of 200,000 Model 3 VINs, the company has started registering batches of VINs for European customers.

During the third quarter earnings call Tesla CEO Elon Musk spoke about the company’s plan for Europe and China.

He said, “Looking ahead, we expect to produce and sell even more Model 3s in Q4. And expect that trend to continue into Q1. And we’re excited to bring Model 3 to Europe and China early next year, given that the market for mid-sized premium sedans in those regions is even larger than in North America.”

In the first week of December 2018, Tesla invited European Model 3 reservation holders to configure their Model 3. Tesla said it expects to start delivering Model 3 Performance and Dual Motor AWD editions to European customers in early February 2019.

Tesla also announced its Model 3 Europe pricing simultaneously.

The Dual Motor Model 3 Performance edition will be starting at €68,600 ($77,916) in Germany, while Dual Motor Long range edition starts at €57,900 ($65,762).

In Norway, Dual Motor Model 3 Performance and Long-Range model will start 555,320 kroner ($65,333) and 464,020 ($54,592) kroner respectively.

After Tesla sent out the invites in early December 2018, many including the author thought Tesla will set aside some production capacity to build Model 3 for European customers.

Reason: Tesla was quickly exhausting its Model 3 order backlog in the United States, while weekly production capacity continued to ramp up.

Some media reports claimed that Tesla built 1,000 Model 3s in a single day, a weekly production capacity of 7,000 units. But Tesla did not start registering batches of European Model 3 VINs until now.

This clearly shows that Tesla had enough demand in the United States to absorb its entire Model 3 production capacity. Tesla reportedly had a bit more than 3,000 units of Model 3 inventory on the last day of December.

Why Europe is important for Tesla Model 3?

Tesla Model 3 Europe
Tesla will soon start delivering Model 3 in Europe

Tesla’s success in selling Model 3 in Europe and China is extremely important for the company because it will allow Tesla to further ramp up Model 3 production.

Tesla CEO Elon Musk said that the electric car maker will be in a position to launch the $35,000 standard battery model after shipping more than 5,000 units of Model 3s every week for three to six months.

He said, “With production, 1st you need achieve target rate & then smooth out flow to achieve target cost. Shipping min cost Model 3 right away wd cause Tesla to lose money & die. Need 3 to 6 months after 5k/wk to ship $35k Tesla & live.”

Tesla has not reached that level yet – selling more than 65,000 units of Model 3s in a quarter or 5,000 units per week. (13 weeks of 5,000 units equals 65,000 units). Tesla released its second quarter Vehicle Production & Deliveries numbers today.

The electric car maker delivered 63,150 Model 3s, 13,500 Model S, and 14,050 Model X vehicles in the fourth quarter of 2018.

A total of 90,700 vehicles. Tesla also came close to its 2018 guidance for Model S and Model X deliveries. The company has delivered 99,394 Model S and Model X in 2018, 606 units short of their 100k goal.

Now the challenge for Tesla is to stay above this delivery record in 2019.

In-line with our expectation that Tesla will drop its price in the United States to offset the federal tax credit reduction, Tesla announced today that the company will drop Model 3, Model X and Model S price by $2,000.

“Moving beyond the success of Q4, we are taking steps to partially absorb the reduction of the federal EV tax credit (which, as of January 1st, dropped from $7,500 to $3,750). Starting today, we are reducing the price of Model S, Model X and Model 3 vehicles in the U.S. by $2,000.” – Tesla

This is what we wrote on December 24th, 2018: The best solution to increase Model 3 demand in the United States is – drop the price of Model 3.

Slashing prices is an option for Tesla, for now, it will remain the company’s last resort. Tesla will reduce the price in small decrements to keep a check on margins. But small decrements will only provide small sales increments.

Tesla needs to stay on the ramp

The higher the number of Model 3 the company builds and sells on a weekly basis, the faster the company will scale, which in turn will help reduce production cost.

With Tesla exhausting its order backlog in the United States for higher-end Model 3s, the company needs international markets in Europe and China to drive the demand for its higher-margin Model 3 editions. This will allow Tesla to offset sales of higher volume – lower margin editions in the United States.

As Musk said in the recent earnings call, the premium sedan markets in Europe and China is even larger than North America.