3 Nuggets About Tesla Customer Demand From 2nd Quarter Conference Call

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There are a lot of things that slip into the “Tesla narrative” and common Tesla discussions. Some of those things make sense. Some don’t. Some provide insight into the future. Some don’t.

Two days ago, just before the second quarter Tesla conference call, I wrote a long and rambling piece about Tesla demand, essentially writing that no one knows what Tesla demand is or will be. In the first quarter and much of the second quarter, conventional wisdom was that Tesla demand (that is, sales) had peaked in the 4th quarter and then fallen off a cliff. There are various reasons why that wasn’t the case but was seen as the case, but the important point was that most Tesla analysts, TV talking heads, and critics were wildly off the mark. The second quarter ended up setting a new Tesla delivery record. Though, as CEO Elon Musk noted on the call (and we, especially Maarten Vinkhuyzen, have said many times), it’s important to remember that Tesla orders ≠ Tesla deliveries. For that matter, even orders ≠ demand, especially since Tesla hasn’t entered many markets and even in markets where Tesla is “present” numerous customers are simply waiting for a service center to open in their country or region before buying a car.

I wasn’t expecting much commentary or any statistics on Tesla customer demand or orders on the conference call, so I was happily surprised when Elon did say a bit about these. So did CFO Zachary Kirkhorn.

1) The biggest comments in the near term were that Tesla expects Q3 orders and deliveries to be higher than Q2 orders and deliveries. Elon: “I think demand in Q3 will exceed in Q2. It has thus far and I think we’ll see some acceleration of that.” Zach: “Generally speaking, our order rate this quarter is higher than where we were in Q2.” Earlier on the call, Zach also said: “Nearly all orders in Q2 were new — not backlogged reservations — and order rate so far in Q3 is higher.”

In other words, not only was all the chatter totally wrong about Q1 being the new normal and Tesla falling off a demand cliff in Q2, but it seems completely out of the question in Q3.

2) That growing order rate is basically all about the Model 3. Model S & X demand, on the other hand …

Well, perhaps the second biggest shocker on the conference call (after news that longtime CTO and cofounder JB Straubel is transitioning into an advisory role) was Elon so openly talking about weak Model S & X demand. Asked about why their sales are so much lower than what had been the norm for several years, Elon responded, “We’re not quite sure ourselves. I think there’s some cannibalization. Maybe there is some false expectation in the market that some big overhaul in the market is coming for S & X, which then could cause people to hesitate to buy if they think some radical change is coming.”

In other words, Elon and team don’t really know why Model S & X sales have dropped off so much. Though, the two possibilities Elon brought up are common hypothesis.

I don’t know either, of course, but I spend a lot of time with my ear to the ground in the “Tesla community.” My biggest hunch concerns the thing Elon talked about right after cannibalization — that there’s “maybe” been a false expectation of a big Model S & X overhaul around the corner. However, the term “maybe” did not fit logically into that sentence. There was definitely a false expectation about this. Also, I have to say, it blows my mind a little bit how Tesla has handled the issue.

Since at least sometime in 2018, Tesla fan after Tesla fan after Tesla fan has claimed that a “big refresh” is just around the corner for the S & X, coming any day. There’s been an expectation that the interior will totally change. As far as I’ve seen, almost everyone who follows Tesla closely has assumed this. I never saw solid proof of this assumption, so CleanTechnica never wrote about it, but so many people claimed it was a sure thing that I also didn’t argue much about the assumption and kept an open mind, just noting from time to time that we hadn’t seen proof of a coming refresh.

In recent weeks, Elon clarified on Twitter that no big refresh for these vehicles was planned. As quoted above, he added a few comments on the call last night as well. Is that enough to dissipate the expectation and undo the damage? Definitely not!

The things that blow my mind about this are that a) it has been obvious for several quarters that people have been expecting big Model S & X refreshes, and surely delaying purchases as a result, b) the rumor was definitely spreading to people who don’t follow Tesla closely as well, as people who do (Tesla fanatics) are often critical to ongoing word-of-mouth sales and were in many cases telling more mainstream buyers that they should wait for the refresh (coming any day), and c) Tesla did almost nothing to crush the rumor until very recently. I don’t really understand why. Perhaps key staff didn’t have as strong of a sense that this was such a big expectation and that it was deferring or killing sales. Perhaps they were too busy with Model 3 and not focusing enough on what was going on elsewhere. Who knows?

I do think this is a notable issue, though. The S & X should be selling much higher. They outcompete their gasoline/diesel competitors quite massively and objectively. They should be performing better in their respective vehicle classes.

Sure, many people who would have previously stretched for an S or X are now choosing a Model 3 instead, but that doesn’t mean the S and X shouldn’t be beating the BMW 7 Series and X5 in many more markets. Demand is artificially lower than it should be due to false expectations in the market — no doubt about it — and also from many buyers still not knowing about the practicality or superior features of an S or X compared to all of their class competitors.

Also, people need to be informed a bit more clearly on what Tesla has improved in the S and X over the years. We have a 2015 Model S. It is significantly worse (sorry to say) than a new Model S. A new one has much nicer seats, better interior features and design, much better autonomous-driving hardware, significantly better build quality, a superior glass roof, and much improved batteries, among other things. I don’t think all of this has been tied together and strongly presented in one piece.

Elon did say on the call this week, “The S & X today are radically better than the ones when we first started production. … Maybe there is a communications issue where people just don’t understand how much better S & X are.” Good start. However, much more needs to be said and shown.

3) Elon can have challenges with short- or mid-term forecasts, but his long-term forecasts have historically been surprisingly superb. His simple, back-of-the-napkin forecasts several years out are often eerily on the money. With that in mind, this is a big statement: “We probably need to do a reset. I’m not saying like a Master Plan part three, but in some ways, the battery day will be like Master Plan part three. Which is like, how do we get from in the tens of GWh per year to multiple terawatt-hours per year? That’s a pretty giant scale increase. It’s an increase of roughly 100. It’s more than that when you think about the factories in Japan. And think about how we get to like 2 terawatt-hours per year.”

Going from battery production of tens of gigawatt-hours a year to 2–3 terawatt-hours a year implies an expectation that the company will have massive future demand. This has been forecasted much more generically by Elon in recent months when he’s talked (or tweeted) about Tesla “Full Self Driving,” robotaxis, and the company’s apparent lead in this realm, but any time Elon puts some specific numbers to something, the story gets much more interesting and tangible.

The first followup question in response to these statements were about Model S and X pricing and demand. Elon in a special way stayed on the topic above while answering the question, stating, “Long term sales demand for 3 is probably on the order of 3/4 of a million cars per year and it’s probably 1.25 million vehicles per year for Model Y. The combined for those two vehicles is 2 million per year. S & X are probably 80,000–100,000, so 4% of 3 & Y. Then you throw a pickup in there and it just gets smaller and smaller.”

Elon is still expecting consumer demand for approximately 2 million Model 3s + Ys a year. Add on the Tesla Pickup, Tesla Semi, Tesla’s high-end models, and Tesla stationary storage products to get to an overall level of battery capacity needs.

It’s not clear how closely the TWh-level expectations match up with the model demand forecasts above — we’ll be diving into that more carefully in the coming days — but it’s evident that Elon expects long-term demand for Tesla products to be fairly wicked. If you halve Cathie Wood’s number from the tweet above (26 million cars a year), you get down to 13 million cars a year. Chanan Bos’s recent forecasting game came up with potential production and sales of more than 15 million Tesla vehicles a year in 2027. The forecast is not that far off of that 13 million a year possibility.

How bullish is Elon Musk about Tesla vehicle demand in the coming decade? Seemingly, he’s very bullish. The expectations may seem sort of crazy, but that’s Elon’s style. He wouldn’t be Elon if his goals and forecasts weren’t deemed impossible by a significant number of “very serious people.” As ambitious as they may seem, though, on a 3 to 10 year timeframe, I couldn’t advise betting against Elon.

Those are my takeaway thoughts on Elon Musk’s comments directly concerning or indirectly related to consumer demand. If you caught anything else that I’ve neglected to mention, have at it down in the comments. Let us know what you noticed.

No doubt about it, the giant wildcard is Tesla Full Self Driving. Without it, Tesla vehicles are competitive enough that 2–3 million sales a year should be a piece of cake. With it, and assuming Tesla has the magic formula quarters or even years in advance of competitors, demand is hard to comprehend and certainly impossible to forecast. Elon Musk and Tesla do have a history of achieving the impossible, but that doesn’t mean anyone really knows what is coming in the media.

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Zachary Shahan

Zach is tryin' to help society help itself one word at a time. He spends most of his time here on CleanTechnica as its director, chief editor, and CEO. Zach is recognized globally as an electric vehicle, solar energy, and energy storage expert. He has presented about cleantech at conferences in India, the UAE, Ukraine, Poland, Germany, the Netherlands, the USA, Canada, and Curaçao. Zach has long-term investments in Tesla [TSLA], NIO [NIO], Xpeng [XPEV], Ford [F], ChargePoint [CHPT], Amazon [AMZN], Piedmont Lithium [PLL], Lithium Americas [LAC], Albemarle Corporation [ALB], Nouveau Monde Graphite [NMGRF], Talon Metals [TLOFF], Arclight Clean Transition Corp [ACTC], and Starbucks [SBUX]. But he does not offer (explicitly or implicitly) investment advice of any sort.

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