Elon Musk: There is not a demand problem for the Tesla Model 3

Tesla CEO Elon Musk's opening comments at the annual shareholder's meeting went straight to a question that has been looming over the automaker since it reported wider-than-expected losses and a one-third drop in deliveries in the first quarter: demand.

"We get this question a lot. I want to be clear, there is not a demand problem," Musk said.

But he didn't stop there. Musk quickly added that sales have far exceeded production. "Production has been pretty good," Musk said. "So Tesla has a decent shot at a record quarter on every level - if not, it's going to be very close."

Tesla reported in April that it delivered 63,000 of its electric vehicles in the first quarter of the year, nearly a one-third drop from the previous quarter. Tesla cautioned, at the time, that it expected first-quarter profits would be negatively impacted by lower than expected delivery volumes and several pricing adjustments.

And that proved out, when just a few weeks later Tesla reported wider than expected loss of $702 million, or $4.10 a share.

Tesla blamed the striking difference in numbers on its efforts to increase deliveries of its Model 3 electric car in Europe and China, which was fraught with challenges and caused delays.

But the losses and lower delivery number prompted widespread speculation that Tesla had what looked like a demand issue, a problem it had never experienced before.

Musk tried to quell those concerns during the shareholder's meeting Tuesday in Mountain View, Calif. He said that 90% of the new orders are coming from non-reservation holders and that 63% of its trade-ins are from non-premium categories. "Which means people are trading up to buy the Model 3," he added.