April 4th, 2019 by Vijay Govindan
I would like to apologize to Maarten. I shared with him many of the tweets and links on expectations for Tesla’s Q1 results. Enraged, the G.O.M. (“grumpy old man”) valiantly made a prediction. He took the blow instead of me. I was going to use the material as fodder for how wrong Wall Street analysts and Tesla bears were (yet again). I’m internally eating heaps of humble pie. I hope to dissect the worst offenders at a later date and offer praise as needed to those who got it right.
1 — Tesla’s third highest quarter by orders in history
Thanks for the optimistic and accurate viewpoint, anonyx!
2 — In Troy we trust
Other than the Model S+X production and delivery totals, Troy was very accurate, much more than I would have been. In the face of Model 3 expanding overseas for the first time, that’s very impressive. Troy has a history of accurate predictions. I’m sure his Q2 prediction will be even closer than Q1.
3 — Retire the Bloomberg Model 3 tracker
Swing and a miss! The Bloomberg tracker for Model 3 production was a great tool for the last year. I personally put a lot of faith in the numbers. Tom Randall had his doubts. Rather than fixing the tracker, maybe it’s time to retire and go into the light.
4 — US demand is robust
“In North America, Model 3 was yet again the best-selling mid-sized premium sedan, selling 60% more units than the runner up. Inventory of Model 3 vehicles in North America remains exceptionally low, reaching about two weeks of supply at the end of Q1, compared to the industry average of 2-3 months.
“Despite pull forward of demand from Q1 2019 into Q4 2018 due to the step down in the federal tax credit, US orders for Model 3 vehicles significantly outpaced what we were able to deliver in Q1. We reaffirm our prior guidance of 360,000 to 400,000 vehicle deliveries in 2019.” —Source: Tesla Q1 2019 delivery release
This is in contrast to Tesla bears stating that US demand is falling. Demand is strong in spite of the federal tax credit getting cut in half. We have yet to see the full impact of the release of the $35,000 Model 3. The demand for the Model 3 is just beginning.
5 — Chinese and European deliveries exceeded local delivery capacity
“Due to a massive increase in deliveries in Europe and China, which at times exceeded 5x that of prior peak delivery levels, and many challenges encountered for the first time, we had only delivered half of the entire quarter’s numbers by March 21, ten days before end of quarter. This caused a large number of vehicle deliveries to shift to the second quarter. At the end of the first quarter, approximately 10,600 vehicles were in transit to customers globally.” —Source: Tesla Q1 2019 delivery release
I am not of the fan of the hoops Tesla has to jump through to manage its books for quarter end. It’s not natural or logical. I know every company has to do it. I hate it. It impacts Tesla severely in advancing the company’s mission.
Demand in both China and the European Union is huge. Yes, it is pent-up demand after three years. Anecdotal evidence suggests these new owners are very happy with their cars. I expect this level of demand to increase with the SR coming in six months.
How can Tesla smooth out the logistics? First, local gigafactories will help. We know one is being built in China. Tesla needs one in Europe, too. This will reduce time to delivery and enable Tesla to deliver more cars. Second, Tesla can reduce the number of boats going overseas from 16 to 12. This will give the local delivery teams fewer cars to deliver before the end of the quarter. Focus on the strong US demand. Last, we need Full Self Driving (FSD)! It has to be a huge effort to get all the cars lined up at the dock. It is another huge effort to load the boat. It’s another huge effort to drive the cars off the ship. FSD would allow the cars to park themselves on the boat and drive off when they are docked. What a huge time savings that would be! Combine that with large use of the Tesla Semi, and you are talking about time and money savings. Cha-ching.
6 — What happened to the S+X?
I’m not sure what happened with the S+X production and delivery numbers. Tesla had huge price cuts; one production shift cut; models appearing and disappearing; name changes; and potential loss of demand to the Model 3 Performance and the Model Y. All this happened in one quarter. I think the loss of the old referral program and free Supercharging did not help the cause. I know a refresh is coming, but it might be time to speed it up. The S+X need a clear identity. Model S with Track Mode and the better cooling technology from the 3? Yes, please.
7 — It will be incredibly hard for competitors to reach this level of scale soon
We have seen the struggles Tesla has had in scaling the Model 3. We hear about potential Tesla killers, but they are vaporware. If they are not vapor, they are extremely limited in quantity, high in price, or low in specifications. Battery supply is the main culprit. Battery electric vehicle efficiency for competitors will take time to develop and cost lots of money. Let me reiterate the number of fast charging stations are well behind Tesla Supercharger stations in number and availability. All these point to a sustainable advantage for Tesla over the coming five years. No one else can match their battery production and EV scale. Tesla is a fast moving target, employing blitzscaling like no one else in the auto industry.
8 — Autonomy Investor Day should be a quarterly event
Tesla announced its first Autonomy Investor Day on April 19th. This is a great idea. Tesla should frame the narrative every quarter on what it is doing to advance Full Self Driving. Tesla should make Autonomy Investor Day a quarterly event. At the same time, I would be very interested in hearing about the Tesla Network fleet. Details are very few and I want to learn more.
How is this related to deliveries? Short term, it won’t matter. Long term, it is another advantage to Tesla vehicles, giving them first mover advantage. As Tesla scales production higher, delivery of FSD vehicles will increase.
In my own case, we were deciding a between Model 3 SR+ with FSD or Model 3 LR. We decided on the Model 3 SR+ FSD. This combination of 3 SR+ with FSD will produce higher margins than the Model 3 LR. That’s good for Tesla, good for zero emissions, and good for the safety of everyone involved. It has the potential to turn a liability (depreciating car with payments) into an income earning asset. FSD is a key pillar to increased demand for Tesla vehicles. This can be directly via ownership or by payments from a ridesharing service. A focus here shifts the narrative from fleeting numbers to the sustainable advantage Tesla is building.