Tesla's (TSLA -0.35%) first-quarter deliveries missed estimates by a significant margin, sparking a sharp sell-off in the electric automaker's stock on Thursday. The company produced and delivered 77,100 and 63,000 vehicles, respectively, in the period. Those were meaningful sequential decreases, and the numbers missed analysts' average estimates for 84,700 produced and 74,900 delivered. 

Despite that, there was an important silver lining in the first-quarter update: Model 3 demand remains strong. Recent price cuts and a reduction to the company's workforce earlier this year had led some watchers to worry that demand might be sliding for the company's newest vehicle. But those concerns may be overblown.

Model 3 interior

Model 3. Image source: Tesla.

Robust Model 3 demand

The developing demand story for the Model 3 is critical to any thesis for owning Tesla stock. The automaker ultimately hopes deliveries for the vehicle will rise to around half a million units per year. Further, the company's forecast that its total vehicle deliveries will rise about 55% in fiscal 2019 is highly dependent on a huge increase in Model 3 sales.

Fortunately, production, deliveries, and demand for the vehicle all remain strong.

In Q1, Tesla produced a record 62,950 Model 3 units -- up from 61,394 units in the fourth quarter or 2018. Tesla's 50,900 Model 3 deliveries were below the 63,150 delivered in Q4, but the bulk of Tesla's 10,600 vehicles in transit to customers at the end of the Q1 were Model 3 units; the automaker only had 1,010 Model 3 units in transit to customers at the end of Q4 2018.

Further, Tesla said U.S. orders for Model 3 "significantly outpaced what we were able to deliver in Q1." While the company offered no details about overseas orders for the vehicle, they're apparently good enough for Tesla to reaffirm its impressive guidance for 360,000 to 400,000 total vehicle deliveries in 2019 -- a range that would be 45% to 65% higher than the 2018 number. 

Zooming out

While it's easy to focus on the sequential decrease in Tesla's Model 3 deliveries, investors should be wary of getting too caught up in quarter-to-quarter fluctuations. Since Tesla doesn't advertise, it's likely to take some time for its word-of-mouth marketing strategy to build sales momentum. That was the  case with Tesla's Model S, too, as trailing-12-month sales steadily rose during the time between the vehicle's launch in 2012 to an annualized sales volume of around 50,000 units by the end of 2015 -- a level where it has mostly remained (give or take around 5,000 units in any given trailing-12-month period) ever since.

"As more people see our car on the road, take a test drive or talk with another Model S owner, more demand is created for our product," Tesla said regarding its low-key marketing tactics in its Q3 2013 shareholder letter. 

Further, when zooming out from quarter-to-quarter fluctuations in Tesla's total vehicle deliveries, they're notably soaring on a year-over-year basis. Deliveries were up 110% in Q1. In addition, deliveries are up 158% year over year on a trailing-12-month basis. One quarter of worse-than-expected deliveries, therefore, isn't enough to justify worrying about Tesla's sales growth potential.

Considering that the Model 3 is already the best-selling mid-sized premium sedan in North America, Tesla's update on U.S. demand for the vehicle suggests it is a big hit with consumers -- and it bodes well for the company's overseas expansion, which has only just begun.