What triggered the crash? Tesla Inc (NASDAQ: TSLA) stock fell 12.97% after the company announced that it will reduce full-time employee headcount by approximately 7% (we grew by 30% last year, which is more than we can support) and retain only the most critical temps and contractors. Tesla will need to make these cuts while increasing the Model 3 production rate and making many manufacturing engineering improvements in the coming months. Higher volume and manufacturing design improvements are crucial for Tesla to achieve the economies of scale required to manufacture the standard range (220 mile), standard interior Model 3 at $35k and still be a viable company. Full self-driving, Model Y, Semi, Truck and Roadster on the vehicle side and Powerwall/pack and Solar Roof on the energy side are only the start.

Disappointing Performance: Moreover, in Q4, preliminary, unaudited results indicate that the company will again made a GAAP profit, but less than Q3. This quarter, as with Q3, shipment of higher priced Model 3 variants (this time to Europe and Asia) will bring some profit.

However, starting around May, the company will need to deliver at least the mid-range Model 3 variant in all markets, as the company need to reach more customers who can afford the vehicles. Furthermore, the company need to continue making progress towards lower priced variants of Model 3. Right now, the most affordable offering is the mid-range (264 mile) Model 3 with premium sound and interior at $44k. The need for a lower priced variants of Model 3 becomes even greater on July 1, when the US tax credit again drops in half, making the car $1,875 more expensive, and again at the end of the year when it goes away entirely.

Additionally, Q4 deliveries grew to 90,700 vehicles, which was 8% more than the prior all time-high in Q3. This included 63,150 Model 3 (13% growth over Q3), 13,500 Model S, and 14,050 Model X vehicles. In 2018, the company delivered a total of 245,240 vehicles: 145,846 Model 3 and 99,394 Model S and X. To put the growth into perspective, the company delivered almost as many vehicles in 2018 as the company has done in all prior years combined. The Q4 Model 3 deliveries were limited to mid- and higher-priced variants, cash/loan transactions, and North American customers only. More than three quarters of Model 3 orders in Q4 came from new customers, rather than reservation holders.