When Tesla (TSLA -1.80%) announced its quarterly vehicle deliveries last week, the media seemed to be mainly focused on the quarter's Model 3 sales -- which, of course, is fair. Since the vehicle now accounts for the bulk of Tesla's total vehicle deliveries, investors have good reason to keep an eye on the important car's sales trends.
But there's another key takeaway from the update beyond the Model 3's record sales: Model S and X rebounded nicely from a first-quarter slump. The sequential jump in Model S and X deliveries highlights the two vehicles' sales resilience, even as Model 3 deliveries soar.
Model S and X. Image source: Author.
Model S and X deliveries rise
A quick glance at Tesla's second-quarter vehicle deliveries would make any positive takeaway regarding Model S and X sales trends easy to look over. Total deliveries were up 134% year over year, driven by a 320% increase in Model 3 deliveries and slightly offset by a 21% decrease in Model S and X deliveries.
But here's where the positive news for Model S and X came in. Even though the two vehicles' deliveries were down year over year, they were up significantly on a sequential basis. Combined Model S and X deliveries during the period increased 46% compared to Q1. Such a sharp increase in deliveries was surprising after sales plummeted in Q1.
Of course, there was a good reason for lower sales in Q1: The federal credit for electric vehicles was cut in half at the end of 2018, prompting many customers to order Model S and X in the fourth quarter of last year in order to take advantage of the full credit. But some investors were likely worried that much of Tesla's first-quarter sales slump for the two vehicles was also due to cannibalization from growing Model 3 sales. While cannibalization could still be negatively impacting Model S and X deliveries, its impact may not be as bad as some suspected.
Still critical to Tesla's bottom line
A recovery in Model S and X sales is also important to Tesla's bottom line. With a price tag about twice what the Model 3 costs, Model S and X sport a higher gross profit margin than Model 3. As of Tesla's most recent quarterly shareholder letter, the Model 3's gross margin was about 20%. This compares to about 25% (and sometimes greater) for Model S and X. With a wider profit margin on higher average selling prices compared to the Model 3, the Model S and X contribute much more money per vehicle to Tesla's business than the Model 3.
Further, since Tesla still hasn't become sustainably profitable, every dollar counts. While Tesla expects Model 3's gross margin to swell to 25% eventually, it's not there yet. This means the electric-car company needs all the help it can get from Model S and X.
