Tesla (TSLA) reported weaker-than-expected first quarter deliveries and production figures, triggering a selloff in the company's stock. Barclays Senior Autos Analyst Dan Levy joins Yahoo Finance Live to analyze the factors contributing to this decline.

Levy highlights slowing demand in the China and US markets, as well as production units that may have been "left in transit." This situation could potentially lead to an inventory buildup, necessitating "further price cuts ahead to clear that excess inventory."

From a fundamental standpoint, Levy says, "there are a couple of challenges that need to be addressed" before Tesla's stock can experience a turnaround. He highlights volume concerns, which have resulted in flat growth, and notes that an inventory buildup could lead to weaker profit margins for the company.

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Editor's note: This article was written by Angel Smith

Video Transcript

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JOSH LIPTON: Tesla shares under pressure after reporting a significant delivery miss for the first quarter. 387,000, that was versus an expectation of 449,000. The EV maker noting production setbacks as a reason for the decline in volumes.

Dan Levy Barclays, Senior Autos Analyst joining us now for more. Dan, it is good to see you. So, Q1 deliveries much softer than expected, Dan. What drove this miss?

DAN LEVY: Hi, Josh and Julie. Thank you so much for having me. Look, I think there's a couple of things that you saw playing out in the quarter. I think there's weak demand that's likely playing out across a variety of regions.

We're still waiting to get the final data. But some of the China data we saw late in the quarter was quite weak. And we know that in the US, there's been some softness as well. So I think we're going to find out the share by region. But that was quite soft.

The other thing that we likely saw was that while production was Well ahead of deliveries. And there may have very well been some units that were left in transit. This likely implies that there's going to be some further build of inventory.

And this is maybe a bit of a challenge going forward as this now implies potentially further price downs ahead to clear this excess inventory. They likely built something like 45,000 to 50,000 units of inventory. It adds on top of the call it 90 to 100,000 units they already had. So extra inventory likely means that there's going to be some negative pricing ahead.

JULIE HYMAN: Dan, does that also presume that maybe what you're talking about is not priced into the stock already, that there could be further cuts, that maybe what we're seeing on the delivery side is only the first of perhaps more quarters like this to come?

DAN LEVY: Yeah, I think there was a couple of challenges that still need to be addressed from a fundamental standpoint. One is the data likely implies that you're potentially going to have flat volume year-over-year, which tells you that we're looking at really a year of no growth. This data point that we got implies that to get any sort of growth, we really need to see a ramp of deliveries in the back half of the year.

As it was, it was already a steep ramp with volume well in the range of 500,000 units plus per quarter. So one issue that needs to be addressed is the volume side. The other side is around margins.

I think there was a view that actually Tesla had been maintaining for a bit more discipline on price preferring in more recently to trade away some volume for price. But I think what we're seeing is that with this inventory build, it potentially implies further price downs ahead. And this potentially implies that you're going to have some weakness coming on margins really testing the trough that we saw in the third quarter. So there are going to likely be some negative EPS revisions coming.