Forecast: Tesla Could Hit 50% Production Growth Target In 2022, Unlikely To Hit 50% Growth In Deliveries
In the 4th quarter of 2020, Tesla stated: “Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. The rate of growth will depend on our equipment capacity, factory uptime, operational efficiency and the capacity and stability of the supply chain.” While CEO Elon Musk and CFO Zachary Kirkhorn have indicated that the 50% growth target is a multi-year average and some years will see faster growth while other years see slower growth, Tesla seemed to reiterate that 50% growth target specifically for 2022 in January 2022, in April 2022, and in July 2022.
Tesla production and delivery tracker “Troy Tesla” has come to the conclusion that Tesla is still likely to achieve its 50% production growth target (70% likely according to Troy), but that the company is extremely unlikely to achieve its 50% delivery growth target. Here are some more details on the forecast:
Hi everybody. Tesla's guidance for this year is 50% growth in production and deliveries. To achieve that, they would need 1,404,333 deliveries in 2022 which means 495,760 in Q4. That's not going to happen. However, they still have a shot at achieving 50% growth in production. pic.twitter.com/AOFwUEHtP5
— Troy Teslike (@TroyTeslike) October 16, 2022
Some have argued that this is nitpicking and not important, that we’re talking about a small difference in reality versus the forecast. That could very well be a valid point, but the issue — if this forecast turns out to be valid — is that something changed in 2022 that led to the missed delivery growth target. I’ll come back to that in a moment. First, though, another critique has come from people emphasizing that Tesla said the 50% growth target was a multi-year average and no necessarily valid for 2022. Because of all the responses along those lines, Troy dug up a few quotes to show that simply wasn’t correct, that Tesla did indeed target 50% growth throughout the year. Here’s the tweet highlighting statements from January 2022, April 2022, and July 2022:
Some people suggest 50% wasn't the target for 2022. Here's what Tesla said:
26 Jan 2022: "We expect … comfortably above 50% growth in 2022"
20 Apr 2022: "50% or above growth rate remains achievable for the year"
20 Jul 2022: "We're still pushing to reach 50% growth this year" pic.twitter.com/gzqo69G61E— Troy Teslike (@TroyTeslike) October 16, 2022
You can see that the latest quote reaffirming that 50% growth target came just 3 months ago.
So, whether you see this as important or not, it’s clear the target has consistently been 50% growth in 2022. And while many of us — even shareholders like myself — don’t pay much attention to short-term stock price trends, let alone worry about them, Wall Street traders definitely respond to things like missed growth targets.
Tesla’s Q3 sales report, which affirmed another quarter of record production and deliveries, explained the lower-than-expected deliveries as being a result of Tesla changing up its logistics patterns. “In Q3, we began transitioning to a more even regional mix of vehicle builds each week, which led to an increase in cars in transit at the end of the quarter. These cars have been ordered and will be delivered to customers upon arrival at their destination.” Elon Musk tweeted a similar addendum to the news:
Smoothing out crazy end of quarter delivery wave to reduce expedite costs & relieve stress on Tesla team. Aiming for steadier deliveries intra-quarter.
— Elon Musk (@elonmusk) October 2, 2022
That seems like a logical explanation, but Wall Street didn’t respond well to the 3rd quarter numbers and the stock price took a hit after their release. Additionally, not everyone is buying that argument. Troy Teslike and others have attributed the lower-than-expected delivery total to a drop in vehicle demand in China. “The number of buyers who want to take delivery dropped sharply and suddenly in Q3. Tesla wasn’t expecting that. 22K fewer deliveries than production in Q3 wasn’t the plan,” Troy wrote in response to the question, “Troy why do you think they expanded capacity in Shanghai if the demand is not there?”
Though, that raises more questions. One person asked, “If this is true, why hasn’t Tesla dropped prices in China yet? You would think they have better knowledge than you on demand side, and if you say demand has dried up — they would know. And if demand, in fact, has dried up — why aren’t they cutting prices?” Someone else asked if Troy agreed with decades-long Wall Street analyst and Managing Partner of The Future Fund LLC, Gary Black, that this slump was “just a temporary drop in China as people are waiting for better incentives/price, or do you think it’s more of a long term issue?” Troy agreed with that take. “Yes, I think it’s a pricing issue. Potential buyers still like the car.”
Though, others raised questions about the economic situation in China and whether the purported drop in demand is more systemic and more serious. “Recession in China is real? Real estate caused it, maybe, or COVID lockdowns, or supply chain disruptions reducing incomes, etc.?” Someone else noted, “BYD and one other Chinese company have exceeded expections. With the zero covid policy, the Chinese consumers are feeling poorer and are opting to buy the cheaper EV models.”
A Daniel Lee wrote, “Obsession with ‘50%’ growth is overblown. 50% growth under normal macro is extremely difficult, name another co. that does it. In 2022, once-in-a-life, multiple-threat Macro (WW3, supply chain, Covid, Fed hikes), WS needs wake up and appreciate Tesla’s amazing progress! Damn it.” Similarly, another account writes, “I think it is unfair to expect them to hit 50% now given the Q2 lockdowns. They would have easily hit 50% if they didn’t lose 70k-80k in Q2. Beyond their control really!” There are strong arguments there as to what unexpected external factors could have caused a somewhat weaker than expected year from Tesla. It’s hard to argue that each of those factors didn’t have more of an impact than should have been foreseen. Yet, at the same time, if the drop in deliveries was actually due to Chinese demand being lower than expected until just the past couple of months, that would raise some concerns about Tesla’s future growth plans, particularly in the biggest automotive and biggest EV market in the world — by a wide margin.
Arguments go back and forth on these matters, and more as well, such as large macroeconomic factors such as global inflation, potential recession on the horizon, and Russia’s globally disruptive invasion of Ukraine. Nonetheless, I think this final tweet summarizes the situation best of all and even does so while feeding Tesla [NASDAQ:TSLA] critics and fans:
Comments are hilarious. If there are external circumstances which did not allow 50% well it does not matter really, they are still accountable for original guidance. Anyways achieving anything over 30% in these market conditions is fantastic. 2023 will be as hard as 2022 🙂
— Oleg Ivchenko (@Kamarrera) October 16, 2022
Well said. If you care about the stock price and how it relates to Tesla 2022 forecast, well, guidance missed is guidance missed. If you look at the big picture and the long game, nearly 50% growth is phenomenal in 2022. Yet … headwinds are still coming our way. So, let’s see what happens in the 4th quarter and in 2023, and let’s especially keep a close eye on the Chinese market.
To close, below are several charts visualizing Tesla vehicle delivery growth in recent years.
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