SAN FRANCISCO Tesla reported a sharp decline in car deliveries in the first quarter, a disappointing start to the year for a company beset by market challenges and reputation hazards.

The delivery numbers reported Tuesday come as Tesla faces soft demand for electric vehicles, high interest rates, a string of lawsuits against its technology and controversy surrounding its chief executive, Elon Musk. Musk had warned during a January earnings call that Tesla would experience a notably lower growth rate this year as the company invests in a next-generation vehicle it plans to start building in 2025.

Tesla said it delivered 387,000 vehicles to customers in the first quarter, down 20 percent from the previous quarter and down more than 8 percent year-over-year. Ahead of Tuesdays report, Wall Street analysts generally expected Tesla to report 443,000 deliveries for the quarter, according to Wedbush Securities analyst Dan Ives. Tesla shares fell 4.9% on Tuesday.

The company blamed the slowdown at least partly on a shift to early production of the next version of its Model 3 sedan, Red Sea shipping disruptions and suspected arson at its Berlin factory.

Deepwater Asset Management analyst Gene Munster pointed to the broader economy and falling EV sentiment for Teslas ugly delivery number. Higher interest rates have made it more expensive to finance pricier electric vehicles, Munster wrote in a tweet, adding, The excitement around [electric vehicles] has cooled, which further dampens sales.

But he also wrote that Tesla is still on the right track.

Ives likened the companys first quarter to a train wreck into a brick wall. Its now up to Musk to engineer a turnaround as the company moves toward its next vehicle, Ives said.

Lets call this what it is: While we were anticipating a bad [first quarter], this was an unmitigated disaster 1Q that is hard to explain away, Ives said. We view this as a seminal moment in the Tesla story for Musk to either turn this around and reverse the black eye 1Q performance otherwise, some darker days could clearly be ahead that could disrupt the long-term Tesla narrative.

The electric-vehicle company whose stock is down more than 20 percent in the first quarter slashed its prices throughout 2023 to maintain demand, but those cuts were not enough to overcome the headwinds it has faced in the first quarter of the year, analysts said.

Its death by 1,000 cuts, said Karl Brauer, an executive analyst with the car research company ISeeCars.com. Musk has never had a demand problem but over the past year-plus, there has been increasing indicators that hes producing more cars than the market wants.

Tesla said it made 433,000 vehicles in the first quarter, or 46,000 more than it delivered.

Wider market forces are also at play for Tesla. While sales of electric vehicles are still growing faster than gasoline car sales in the United States, interest has started to cool lately amid concerns about a lack of charging infrastructure, among other reasons. Other carmakers, such as Mercedes-Benz, have delayed electrification goals or reduced their short-term ambitions of electrification.

At the same time, though, the Chinese electric-vehicle maker BYD overtook Tesla last year, selling more electric vehicles on a quarterly basis.

Teslas lower sales numbers add to the companys troubles. It is also facing increased scrutiny from regulators over its driver-assistance software Autopilot. Last year, the company agreed to recall 2 million vehicles nearly every car it has produced over concerns that the technology did not have enough guardrails to prevent driver misuse. The recall, which was conducted by a remote update, was the result of a sweeping investigation by the National Highway Traffic Safety Administration into the technology.

Days before the recall was announced, The Washington Post published an investigation identifying at least eight fatal or serious crashes involving Autopilot in locations where the software was not intended to be used.

The company is also facing lawsuits involving its Autopilot software that question whether the driver is solely responsible when things go wrong in a vehicle guided by Autopilot, or if the software should also bear some of the blame. Tesla will face a jury this month over a wrongful-death lawsuit involving a Tesla in Autopilot that veered into a median on Highway 101 in Northern California in 2018 while the driver allegedly wasnt paying attention.

So far, the company has been successful in staving off liability: A jury found Tesla not liable last year in case involving Autopilots alleged role in a deadly crash in Riverside, Calif.

Ahead of Tuesdays report, Deepwater Assets Munster said neither Musk nor investors appear to be swayed by Teslas legal challenges. Last month, Musk doubled down on his Full Self-Driving technology Teslas premium driver-assistance system by requiring employees to install and show customers how to use the latest version before completing a sale.

Going forward, it is mandatory in North America to install and activate FSD V12.3.1 and take customers on a short test ride before handing over the car, Musk wrote in an email to his staff, first reported by Bloomberg News. Almost no one actually realizes how well (supervised) FSD actually works. I know this will slow down the delivery process, but it is nonetheless a hard requirement.

Meanwhile, a survey by the market intelligence firm Caliber, provided to Reuters, showed that a consideration score for Tesla fell to 31 percent in February, less than half its high of 70 percent in November 2021, when it started tracking consumer interest in the brand. The report partly cited Musks controversial reputation. Musk, one of the worlds richest people, has courted controversy in the past year as he has espoused hard-line immigration ideals, promoted antisemitic rhetoric, pushed conspiracy theories and criticized liberal causes as a woke mind virus.

His polarizing comments have driven away users and advertisers from the social media platform X, formerly Twitter, which he owns.

Musk has argued that Teslas more recent sales issues merely reflect business cycles, saying that the company is between two major growth waves.

When it comes to Teslas struggling sales, Brauer said Teslas legal challenges and Musks personality arent leading factors behind the declines. But, he said, it certainly isnt helping.

Those factors are only leading to all the challenges, he said.

Tesla did not respond to a request for comment.

Faiz Siddiqui contributed to this report.

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