“Tesla Demand Cliff” — Mistaken Logic? Tribal $TSLAQ Kool-Aid? Paid Trolling?

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Tesla Model 3, Model S, Model X fleet

One year ago, when Tesla’s 3rd quarter 2018 production and delivery data came out, many Tesla critics were stunned — absolutely stunned. They had been saying for months that Tesla absolutely could not produce the number of cars Tesla ended up producing. They also said with great conviction that Tesla absolutely could not show a profit in the 3rd quarter, or any quarter. Tesla blew the criticisms out of the water with production, deliveries, and a solid profit.

At that time, seeing the writing on the wall, one prominent, years-long Tesla [TSLA] short seller flipped and went long on TSLA. He seemed to stimulate a $1.11 billion shift in the company’s valuation with that flip. Surprisingly, in his letter explaining why he changed his mind on the company, he used 4 charts I created from Tesla sales data and other OEM sales data. However, it seemed that most short sellers and Tesla critics didn’t come around to the same conclusion and make the same shift. Instead, they shifted their criticisms and pessimistic forecasts, more or less dropping their “production concerns” and getting vocal about “future demand concerns.” I’ll get to those in a moment, but first a note about intent.

It is very difficult to know a person’s intent when spreading misinformation, or when sharing pessimistic or optimistic forecasts. Perhaps they 100% believe what they are saying. Perhaps they sort of believe it, sort of don’t know, but have an agenda. Perhaps they fully realize they are wrong but have a clear agenda or are even paid to spread a certain message. It’s easy to jump to conclusions, but I think it’s wise to realize that you seldom know a person’s true level of understanding and intent. With that said …

It’s really hard to believe the cognitive dissonance from the 3rd quarter (Q3) 2018 results didn’t make people realize they should step off the hypercritical, hyper-skeptical pedal a bit, but it didn’t. Many claimed that Q4 sales figures (deliveries) would be horrible, the Q3 numbers were purely from pent-up demand, that demand was mostly served, and close to no fresh demand would bubble up. Others realized that was too pessimistic (or optimistic for short sellers betting on the company failing), but came up with the same narrative for the 4th quarter. They thought demand would be wiped out by the end of 2018 and nothing like it would form organically from non–#TeslaFanboys. The strong narrative among TSLA short sellers (who like to use the hashtag #TSLAQ or $TSLAQ, alluding to imminent Tesla bankwuptcy, on Twitter) and most of the financial press was that Tesla was about to fall of a steep Tesla demand cliff … and never return.

Chart: Tesal Vehicle Sales (Deliveries)

The 1st quarter of 2019 was a unique one. For one, there was the sharpest drop in the US tax credit for Tesla vehicles (from $7500 to $3750). Additionally, Tesla started delivering Model 3 vehicles overseas, which meant a delay between production and deliveries that the company never had to deal with before, resulting in an inevitable drop in deliveries (from so many cars being in transit). Furthermore, while it’s long been expected among Tesla owners and other supporters that word of mouth would sell an enormous number of Teslas — especially Model 3s — it’s also natural that word of mouth would take some time. People need time to think about the idea for a while, be ready to buy a new car, and then finally decide to actually put down money on a car and place the order.

Despite all of those special circumstances, when Q1 2019 deliveries dropped considerably compared to Q4 2018 deliveries, all of those Tesla critics and short sellers thought they had finally won. The game was over. The demand cliff had arrived. Almost no one else wanted a Model 3. Almost no word-of-mouth sales would pop up in coming quarters. Tesla would finally go bankwupt, crash and burn, those pesky kids from Silicon Valley would lose their shirts at last.

September 18, 2018, a Seeking Alpha contributor and TSLA short seller: “Tesla’s recent ‘liquidation sale’ of Model 3s in Fremont was a sign that Tesla may have an inventory problem at hand. … Tesla’s recent ‘Model 3 Sellathon’ event at its Fremont facilities over the weekend of September 8th to 9th could be a warning sign about how over-bloated Model 3 inventories are. … My gut feeling is that there is a Model 3 inventory problem brewing at Tesla and this is underlined by the many photos on Twitter showing huge parking lots of Model 3s baking under the summer sun in Fremont, Nathrop, and Burbank.”

October 2, 2018, LA Times: “Although the third-quarter numbers look good, the strength of consumer demand for the Model 3 remains questionable. Musk bet the company on the idea that Model 3 would be a mass-market vehicle with sales of 400,000 a year or more. It was billed as a $35,000 car … The company did not address backlog at all in Tuesday’s report, which some short sellers see as a sign that demand may be dropping. Thousands of Model 3s are being stored in lots around the country. The company has called the sites delivery hubs, but auto industry experts including Lutz wonder whether those cars need repairs before they can be delivered or even whether people want to buy them.”

October 22, 2018, Seeking Alpha contributor and TSLA short seller: “We have forecasted that Tesla will introduce a lower price model to counter the Model 3 demand cliff that is increasingly evident. While we expect this cheaper model to stimulate some amount of demand, we believe the results will be sub-par.”

October 29, 2018, New York Times: “Unfortunately for Tesla, the demand for sedans is plunging, which may undercut one of Mr. Musk’s arguments for why a large market exists for the Model 3. On Wednesday, he said the Model 3 competes well against BMW’s 3 Series sedans. But sales of 3 Series cars have suffered as consumers turn to larger vehicles. Tesla may end up fighting for a share of a shrinking market.”

December 4, 2018, Seeking Alpha contributor and TSLA short seller: “Tesla’s poor Model 3 quality and increased competition might result in serious demand problems.”

December 18, 2018, Barron’s: “The looming phaseout of federal tax credits could pull demand forward, hurting next year’s sales, analyst David Tamberrino warns.”

January 3, 2019, Barron’s: “Tesla Ramped Up Production in 2018, But Analysts Say Demand May Be Slowing”

March 4, 2019, CNBC: “Tesla’s onslaught of announcements is raising red flags about demand for its cars … Tesla’s onslaught of announcements is starting to make analysts wonder if customers are losing interest in its cars.”

March 14, 2019, Markets Insider (or Market Outsider as some call it): “Tesla is mired in ‘demand hell’ ahead of Thursday’s Model Y unveiling, the most negative Tesla analyst on Wall Street says. The electric-car maker is facing waning demand in the US and China, said Gordon Johnson, an analyst at Vertical Group whose $72 price target is 75% below where shares were trading Thursday. Other analysts have also pointed to demand as a core problem for Tesla. … ‘Tesla has a demand problem,’ Gordon Johnson, an analyst at the New York-based Vertical Group, told Markets Insider on Wednesday. ‘The demand problem is the Model 3 is not a mass-market car. It’s a luxury car.’ … ‘Tesla has been alone in this market — 100% battery electric vehicles with over 200 miles of range,’ he said. ‘They’ve been alone. And the real competition arrives in the second half of this year. So that’s when I think things really start to accelerate downward.'”

April 11, 2019, LA Times: “A key Tesla supplier cuts growth plans, raising red flags over demand for the Model 3 … Panasonic is freezing plans to expand its role as Tesla’s electric car battery supplier, a move that raises new questions about demand for Tesla’s Model 3 — and the company’s future. … signs of declining demand are everywhere.”

January 31, 2019, Reuters: “Tesla Inc shares fell on Thursday as Wall Street wondered if demand for its mass market Model 3 sedan could be sustained while it tries to make substantial inroads in China.”

June 3, 2019, WSJ: “Tesla Faces Skepticism About Depth of Demand … Tesla Inc. spent years and billions of dollars figuring out how to make enough Model 3 compact sedans to satisfy early customer demand. Now, the electric-vehicle maker is facing questions about how much consumer interest is still there.”

June 4, 2019, LA Times: “Tesla Model 3 sales rise in May, but demand still hasn’t fully recovered”

June 16, 2019, Bloomberg: “Tesla Declines as Model 3 Price Cut Renews Demand Concerns … Tesla Inc. cut the starting price of the Model 3 sedan in the U.S. weeks after a federal tax credit shrank in half, renewing concern over whether the electric-car maker can sustain sales with less support from incentives.”

June 20, 2019, Reuters: “Goldman Sachs on Thursday cut its price target on Tesla Inc by 21%, to third lowest on the Street, on concerns about the sustainability of demand for the electric car maker’s models. … Goldman Sachs analyst David Tamberrino believes although the second quarter has been witnessing a better environment for demand for Tesla’s cars, he doesn’t think it is sustainable.”

September 7, 2019, Quartz: “Tesla’s Model 3 may never catch up to the Nissan Leaf … Skeptics point to Tesla’s dismal deliveries numbers earlier this year as evidence that demand for the Model 3 is slowing, putting the company’s goal of selling 360,000 to 400,000 cars in 2019 further out of reach.”

As we know now, Tesla’s Q3 2019 deliveries set a new record for the company, and net orders actually grew in the meantime. In other words, all concerns (or concern trolling) about Tesla demand up till now have been revealed as pointless. That is, every concern about Q2 2019 or Q3 2019 deliveries being around the level of Q1 2019 deliveries — or at least not setting new delivery records — was an incorrect/illogical/baseless concern.

Chart: Tesal Vehicle Sales (Quarterly Deliveries)

Maybe people just have a hard time admitting when they’ve been making a wrong assumption. Maybe people have remained misinformed accidentally. Maybe they have trouble with logic. Maybe they just got unlucky. Maybe they’re engaging in information fraud. Maybe they’re paid to sell $TSLAQ Kool-Aid.

We’ll see. Yet again, Tesla’s sales (delivery) report is more positive than many expected. Once again, Tesla set a new sales record. Once again, Tesla stated that new orders outpaced production, growing a customer backlog. Once again, Tesla rolled out new features (tons of them) that are generating tons of attention, word-of-mouth sales (or even sales without the words), and overall inspiration and exuberance. Is Tesla demand going to fade now that more early reservation holders have received their cars? Is demand going to all of a sudden drop off a demand cliff in a couple of quarters? That’s what some of the same people convinced of demand problems in 2018 and earlier in 2019 are again saying about the end of 2019 and 2020. We’ll see.

If you’d like to buy a Tesla and get 1,000 miles of free Supercharging, feel free to use my referral code: https://ts.la/zachary63404. Or not.

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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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