• by Tanya Gazdik , July 2, 2024

Tesla  is reporting a 5% drop in vehicle deliveries in the second quarter, which is smaller than what some analysts predicted. 

The electric vehicle maker has been cutting prices and offering incentives to help spur demand. 

Tesla shares rallied more than 10% on Tuesday, hitting the highest level in nearly six months.

Prior to the report, Cox Automotive analysts predicted Tesla sales would fall 15.3% compared to the year ago period, and Barclays expected an 11% drop in second-quarter deliveries. 

Tesla has exhausted “its bag of tricks,” says Jessica Caldwell, Edmunds’ head of insights.

“Times are tough for Tesla: EV sales have slowed, many EV competitors have also been generous with incentives, and the company’s haphazard price cuts and incentives have become less effective in capturing the attention of shoppers the more frequently they’re leveraged,” Caldwell says. “In fact, these tactics are arguably more effective these days in drawing the ire of Tesla owners as they watch the residual values of their vehicles dwindle away.”

Plentiful incentives give consumers an expectation that they are always available, which has long-term negative consequences for the brands that overuse them, she says. 

“Given the affordability crisis, and Tesla’s latest offering is on the pricey side, Tesla is suffering from a narrow product portfolio — the company has less room to nudge consumers into other vehicles and price points that might be more appropriate in the macro environment,” Caldwell says. “Even competing with their attractively priced used counterparts is likely a challenge for new Teslas.”

While perception of the brand has historically been a selling point for Tesla, Elon Musk's antics and his takeover of Twitter haven't exactly helped prop up Tesla’s image, she says. 

Compounding the issue, Tesla is shifting away from being a premium brand and going more mainstream. 

According to Edmunds trade-in data from the second quarter,  just 39% of consumers who traded in Teslas to dealerships went to a luxury brand, which is a notable decrease compared to the 51.5% from the second quarter of 2021. 

“The one thing that is going according to plan for Tesla is that Elon Musk’s brand appears to be spreading the EV gospel, “ she says. 

According to Edmunds data, fewer owners are reverting back to gas-powered vehicles when trading in their Teslas. In the second quarter, 30.7% of Teslas traded in went to the purchase of another EV, a stat up from 17.8% two years ago.