There’s an interesting thing that happens every quarter. Once solid estimates for Tesla’s quarterly production and delivery numbers are in, short sellers and critics jump to the next quarter and typically claim that delivery will fall off tremendously because pent-up consumer demand has been exhausted and sustainable new demand is going to be much more limited.
This is actually not a new phenomenon. It was going on back when the Model S was the only Tesla on the market, and also back when the Model S and Model X were the only Tesla vehicles for sale. It’s now the case for the Model 3, with such critics (some of them the same ones from the early Model S days) continually arguing that the Model 3’s sales are going to be very, very bad next quarter … until they end up being good and those critics have to shift and jump to the following quarter.
But that’s just part 1 of this story, which I’d say has 3 parts.
Analysts who subscribe to this simple, renewable methodology (some of whom have been doing so for years) will of course forecast big drops in the Tesla [TSLA] stock price while running this narrative. (Full disclosure: I’m long TSLA.) They will highlight lack of demand in the coming quarter, or “weakening demand,” until they are proven wrong. A little while after they are proven wrong, they skip that quarter’s old and incorrect narrative and tell the same story about following quarters. However, this seems to be an important part of the story that gets less attention: instead of adjusting their 6-month forecast for the price of a TSLA share (which would be logical if demand ended up being much higher than you previously thought), many of these analysts just shift the goal posts forward in time. In other words, they simply assume their “doom & gloom” story about Tesla demand was not wrong, just slightly premature. (The point when it gets hard to believe this is their honest, genuine forecast is when they’ve been running on this cycle for several quarters or years.)
The third part of this game is the part that I find particularly irritating. Despite all the talk of lack of demand, or dwindling demand, analysts end up having sales forecasts at the end of the quarter that defy those previous arguments. For months, the talk of the town regarding Tesla was that demand was dropping. Now, Q2 delivery numbers are expected to be around Tesla’s all-time high (Q4 2018), ~90,000. If all the people saying Tesla demand had dropped off had stuck with that argument, their estimates should have settled around 70,000 or so for Q2! Instead, the Factset average is approximately 91,000. Have they also significantly increased their price targets for TSLA over that time? Haha — stupid question. 😀
There’s an important point why that last part matters so much. Market reactions to a stock often depend on how much the final results different from “market expectations.” If the market said this week it expects ~70,000 deliveries in Q2 and Tesla reports ~90,000 deliveries, the stock price would spike. Instead, they’re saying that they expect far more deliveries than they expected 1–6 months ago, but they’ve slowly shifted to this view and not many have adjusted their stock price forecast accordingly. If they weren’t allowed to change their analyses from 6 months ago, or 3 months ago, they should be expecting far fewer deliveries than we’ll surely see recorded. Nonetheless, the Tesla stock price is lower than it was 6 months ago! My guess is that it will drop again after Q2 delivery figures come out because those figures probably won’t beat expectations, expectations that were previously absurdly low but are now conveniently high. Does that make sense?
A Tesla Motors Club forum member, Madodel, had a good summary of the past few years of “insight” from many Tesla analysts: “Well they said 3+ years ago that Tesla couldn’t build the Model X. Then they said that Tesla couldn’t sell the Model X. Yet TSLA continued to produce and sell the unbuildable/unsellable. Now if Tesla misses the self imposed goal by one car then all the ‘superior’ stock analysts will declare doom for Tesla. Bankwuptsy imminent and TSLA SP down to $0. I wish someone sold bets on all of them rotting in hell. I think that is a safe bet.” Excellent summary. The only thing is that it misses some of these people also saying Tesla couldn’t build or sell the Model S and then saying it couldn’t build or sell the Model 3.
I wrote this piece up before seeing the video below, but I just watched it and it is, logically, on the same topic. Since the video also highlights an article of mine, I’m obligated to share it. 😉 One extra note Ale makes in the video that I think is important is that despite consistently negative and pessimistic CNBC reporting about Tesla demand and sales (based on “Wall Street expectations”), Tesla had year-over-year delivery growth of 85% in Q2 2018, 219% in Q3 2018, 203% in Q4 2018, 110% in Q1 2019, and according to the Wall Street estimates they reference would have 131% year-over-year growth in Q2 2019. Just referencing 2019, “not such a good first half for Tesla” was the CNBC host’s key takeaway. Seriously.
There’s more “good” stuff in there (like CNBC seemingly inflating Wall Street’s Tesla delivery forecast quite significantly). I recommend watching it.