Tesla delivered a record number of electric vehicles in the fourth quarter, beating market estimates and meeting its 2023 target, but lost its spot as the top EV maker to China’s BYD.

Tesla delivered 494 989 EVs in the October-December period, falling short of the 526 409 vehicles that Warren Buffett-backed BYD handed over — mostly in China — suggesting that car buyers were looking for cheaper models in a high-interest-rate economy.

While the US car maker’s year-end sales push mostly paid off, helping it deliver 1.8 million vehicles this year, it fell short of CEO Elon Musk’s ambitious two million annual internal target.

However, it is still ahead of BYD for the whole year. The Chinese firm delivered a total of 3.02 million vehicles, including about 1.4 million plug-in hybrid EVs.

Tesla stock, which doubled last year, was nearly flat on Tuesday in a broadly weaker market.

BYD’s deliveries show price cuts are working for the Chinese company, said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“The fight will hurt margins for both companies, but BYD clearly believes it’s a price worth paying to increase market share and recognition,” she added.

Tesla increased discounts and offered incentives like six months of free fast charging if customers took deliveries by December-end, in a bid to boost sales before some variants of its compact Model 3 sedan lose US federal tax credits in 2024.

Record

That helped it post a growth of 11% over the immediately previous quarter and higher than estimates of 473 253, according to 14 analysts polled by LSEG.

It made a record 494 989 vehicles in the quarter after a production halt in the third quarter to upgrade assembly lines, taking total production in 2023 to 1.85 million units.

Tesla’s delivery numbers are “much, much, much better than domestic US car companies”, said Gary Bradshaw, portfolio manager at Tesla shareholder Hodges Capital.

Read: China is poised to drive down global EV prices

Smaller rival Rivian also reported deliveries on Tuesday, with the company missing market estimates amid a broader pullback in EV demand.

The weakness has led US car makers including Ford and General Motors to become more cautious about their EV production capacity plans.

BYD’s Atto3 EV, which is available in South Africa

Tesla is also facing scrutiny from regulators over its self-driving technology with the company recalling more than two million vehicles last month to install new safeguards in its Autopilot advanced driver-assistance system, after a federal safety regulator cited safety concerns.

Consumer Reports — an influential US non-profit group that conducts extensive reviews of cars, kitchen appliances and other goods — said its preliminary evaluation suggests the software update to fix issues were not sufficient and did not go far enough to prevent misuse and driver inattention.

Some analysts said Tesla could have to continue the price cuts it started in January last year to maintain demand, after the end of the tax incentives under the Inflation Reduction Act (IRA) brought forward sales into the fourth quarter.

“Tesla may have to cut prices further, especially for a vehicle like the versions of the Model 3 that lost their tax credit,” said Seth Goldstein, equity strategist at Morningstar.

Read: Tesla aims to make 200 000 Cybertrucks a year

The rear-wheel drive and long-range variants of Tesla’s Model 3 no longer have federal tax credits of US$7 500 this year as updated requirements on battery material sourcing kick in, under the IRA.

Goldstein, however, said that most of the price cuts were in response to higher interest rates by the US Federal Reserve so Tesla may maintain prices if borrowing costs start coming down.