Tesla falls 7% as first quarter deliveries show growing inventory buildup and analysts say that more price cuts may be needed

"Incremental price cuts likely needed amid inventory build, especially as production at Austin and Berlin ramps [higher]," Barclay's said.

• Tesla stock fell 7% on Monday after the company announced its first quarter vehicle deliveries.
• Tesla delivered 422,900 vehicles last quarter, which was ahead of Wall Street's 421,500 estimate.
• The stock fell as Tesla vehicle inventory surged, suggesting to some analysts that they need to enact more price cuts to spark demand.

Tesla stock fell as much as 7% on Monday after the company's first-quarter deliveries suggested to some Wall Street analysts that more price cuts are needed to spark demand.

Tesla said it delivered 422,900 vehicles last quarter, which was ahead of Wall Street's delivery estimate of 421,500 vehicles. The issue lies in the fact that Tesla produced 440,000 vehicles during the quarter, suggesting that inventory continues to build for the company. 

In fact, according to a note from Barclay's analyst Dan Levy, Tesla has produced about 75,000 more vehicles than it has delivered over the past nine months.

That could put Tesla in a tough spot as it attempts to sell down its inventory, and could eventually lead to more price cuts.

"Incremental price cuts likely needed amid inventory build, especially as production at Austin and Berlin ramps [higher]," Levy said. 

And more price cuts, which already took the investment community by surprise in late 2022 and early 2023, would shift Wall Street's focus away from vehicle delivery growth and instead towards the sustainability of Tesla's gross margins, "as some have questioned ability to clear target [of] 20%," Levy said. 

Wedbush analyst Dan Ives pointed to this 20% target as the "key threshold" to watch over the coming quarters, especially if further price cuts are enacted.

"The big question will be margins as cutting prices will have an impact on this front although we believe auto gross margins north of 20% remains the key threshold over the coming quarters," Ives said.

Analysts at Bernstein also suggested that more price cuts could be needed if Tesla wants to achieve its volume targets.

Investors will gain more insight into Tesla's first quarter results when the report earnings and guidance after the market close on April 19. And Tesla will need to wow investors if it wants to hold onto its year-to-date gains of nearly 60%.