The goal of this series is to examine current topics being written about Tesla [TSLA] that appear to be stirring up “Fear, Uncertainty and Doubt” (or FUD). The plan is to try to provide reasonable analysis about the validity of the claims. I generally do not link to the articles that “inspire” me to write this, as I do not wish to reward analysis I feel is poor with increased traffic. However, I will freely admit that my analysis may contain incorrect assumptions, and will do my best to acknowledge them in future articles.
Photo by Zach Shahan, CleanTechnica
I just published an article examining the FUD around Elon Musk supposedly terminating employees “on a whim” and what that may mean. This, however, isn’t the only recent FUD-based narrative that I feel is worth exploring at the moment.
The other narrative is people questioning Model 3 demand, specifically due to recent emails and tweets telling people that they can still order a Tesla Model 3 and get it delivery by the end of the year.
As always, my boilerplate paragraph about my stock: I’ll note that I remain a Tesla shareholder with a whopping 8 shares, with no intention to add to or sell that stake. I do think that Tesla remains a risky investment for a plethora of reasons that I won’t get into right now (a few people commented that they want to hear that, so I need to think about how to explain it without creating my own Tesla FUD article…), but also one that has the potential to increase astronomically in the future, which is why I decided to purchase and hold a very limited number of shares. I would not suggest anyone use the following article as their sole data point to decide to invest nor sell shares in Tesla.
Photo by Zach Shahan, CleanTechnica
Tesla Model 3 Demand
I’m just going to come right out and say this here — an article about Model 3 demand is perfect FUD material because it is impossible to have any idea what demand looks like right now.
Additionally, it appears that Tesla has satiated early Model 3 demand for the versions of the cars that it currently offers. In fact, based on the fact that Tesla has cars available right now for delivery by the end of the year, I think it’s safe to assume that domestic reservation demand to purchase the long- and medium-range variations of the car have been filled.
Proof for this is simple: Head to Tesla.com as I write this. It shows that you can still order a Model 3 and take delivery this year.
This comes shortly after Elon Musk announced that you would need to order by the end of November to take delivery by the end of the year.
Clearly, at least according to the FUD articles, Tesla didn’t get as many orders as it expected at the end of November and is now having to frantically search for buyers to try to shore up demand.
While this seems like it may be a fair interpretation of what is going on, if we take a step back, it doesn’t necessarily tell us anything.
Tesla Sales Strategy
Assuming that reservation demand for the models currently in production has been filled, there is still a huge reason for Tesla to be pushing sales right now.
On Tesla’s side, Tesla wants to post another significantly profitable quarter to prove to Wall Street that their Q3 success was no fluke, and to do that, they need to sell as many cars as they can and have people take delivery by the end of this month.
On the customer’s side, they want to take delivery by the end of the quarter to take advantage of the $7,500 tax credit that will start phasing out for Tesla next month. Unless the tax credit is extended, the difference between taking delivery in December or January is worth $3,750.
Knowing this, Tesla has a huge incentive to deliver every single car possible. No matter how many Model 3s are sold, there is a huge incentive to deliver that many plus one more.
Quite frankly, the first part is really no different than any other business wanting to have strong sales in a quarter. Then, it is amplified by the tax incentives. If Tesla wasn’t trying to sell every single remaining Model 3 it had by the end of the quarter, I think it would be a significantly more questionable strategy.
Tesla can’t easily change production lines to produce cheaper variations of the car in order to drive more demand. It does have one tool that it hasn’t used yet, however, that i could use to significantly increase demand on the cars it is currently producing, and the fact that they hasn’t used it signals to me that demand is just fine.
→ Related: Tesla Has 14+ Demand Levers It Can Pull
Let’s talk leasing for a moment. Leasing is a big deal for automobile manufacturers, and it’s an even bigger deal for luxury brands. As an example, BMW is known to lease more cars than it sells in a year.
When you combine that with electric vehicles, leasing seemingly becomes critical. In January of this year, Bloomberg reported that 80% of electric cars were leased and not owned.
If demand was terrible, Tesla could start leasing programs for the Model 3. It hasn’t.
Yes, you may have heard that one of Tesla’s leasing partners was having issues recently, but that doesn’t affect their ability to lease the cars. In fact, just last week Friday, Tesla sold $837 million in bonds backed by its auto leases. While leasing may affect the bottom line until the bonds are sold, it would be an easy way to drive potentially significantly larger demand for the current trim levels of the Model 3.
The company that owns the car in a lease can take advantage of the tax credits, so if demand was as poor as many of the FUD articles attempt to lead you to believe, I imagine we would have seen a big push into lease options at the end of the year. Considering that we haven’t, I can’t imagine demand is off as much as some people believe it to be.
Photo by Zach Shahan, CleanTechnica
The topic of demand is solid FUD material because there really isn’t any data beyond the lack of a waitlist to analyze about it.
We do know that there are huge incentives for both Tesla and their buyers to deliver cars by the end of the year.
On the flip side, the recent sales pushes by Elon, emails pushing sales by Tesla, and shifting the “final” date to order to ensure end-of-the-year delivery aren’t a great look.
As a shareholder I would rather Tesla sell every single vehicle it can before the end of the quarter. Using the phasing out of the tax credit to boost sales as much as possible before the end of the quarter is a way to drive demand. The lack of leasing options seems to indicate that demand to purchase the car is solid, however.
Tesla is the first automaker to cross the electric vehicle tax credit phaseout threshold, and I expect that as we see others pass it, we’ll see similar promotions and moving delivery promise dates by Tesla. Unless we see terrible delivery rates when Q4 wraps up, this is another instance of FUD that I think should be ignored.
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