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Stock and Car Sales Stuff

Stock and Car Sales Stuff

First, a few numbers:

2019 U.S. Sales vs. 2018 U.S. Sales (Passenger Cars Only)
Jan thru May
Acura Cars -2,325 -12%
Audi Cars -69,579 -79%
BMW Cars -12,034 -15%
Honda Cras -6,329 -2%
Hyundai Cars -18,614 -12%
Infiniti Cars -6,932 -30%
Kia Cars -6,613 -6%
Lexus Cars -1,938 -6%
Mercedes Cars -4,116 -6%
Nissan Cars -15,694 -6%
Subaru Cars -12,503 -20%
Toyota Cars -33,591 -9%
Volkswagen Cars 2,362 +3%
Volvo Cars -1,114 -11%
Total -189,020
Source: US Auto Sales Down for Audi, Honda, Infiniti, Mercedes, Nissan, & Toyota in 2019
Clean Technical's, by Zachary Shahan

Ford and GM are excluded, but they're both bailing on traditional passenger cars already. As Zach points out, some are changing brands to go electric with Tesla and some are switching to crossovers and SUVs. The end result is ICE cars are getting hammered.

What is the short thesis for this spring/summer?
1. Demand for Tesla cars is falling off a cliff
2. Tesla is in deep doo doo financially with bankwuptcy imminent

#1 Not True
Tesla delivered 33,350 vehicles Jan-May of 2018: 18,305 Model 3s, 8,070 Model Ss, 6,975 Model Xs). To be consistent, we need to subtract the Model X because it is a SUV. That brings the tally to 26,375.

In 2019, thru May Tesla delivered 58,175 vehicles: 46,425 Model 3s, 5,475 Model Ss, and 6,275 Model Xs. Subtract the 6,275 MX and you get 51,900 cars delivered.

Again, US only, Tesla's deliveries for 2019 are:
Up 74.4% YTD over 2018 including the M3, MS, MX
Up 96.8% YTD over 2018 excluding the MX

Compare that to the miserable sales figures for legacy ICE manufacturers.

#2 Imminent Bankwuptcy
Laughable. Tesla has long operated with a 25%+ gross profit margin per vehicle on the MS and MX. Gross profit margin per Model 3 in the 1st quarter of 2019 was ~20%. Gross margins for the MS and MX were also down somewhat. As Market Realist put it: Unlike in the fourth quarter of 2018, Tesla’s gross margins from the Model S and X contracted in the first quarter of 2019. Price cuts in the Models S and X along with lower deliveries affected the gross margins of these models in the quarter. In the first quarter, Tesla’s Model 3 gross margin contracted to ~20%. During Tesla’s first-quarter earnings conference call, its CFO, Zachary Kirkhorn, blamed recent Model 3 pricing adjustments and high demand for lower-priced Model 3 variants for the contraction in the Model 3’s gross margin.

The problem was logistics. Tesla made a lot of cars. It shipped a lot of cars. Where the company fell short was getting those cars in the hands of customers so they could be counted as sales. Those cars stuck on docks in Dutch and Chinese ports are going to show up in the tallies announced within two weeks.

Every time an executive leaves Tesla the car press and shorts declare a disaster. Every time Tesla reorganizes some facet of its business — a common occurrence with fast growing startups — it's the end of the world. Every Elon tweet is a catastrophe.

It's all a bunch of noise propagated by a couple of industries who rightly feel threatened by Tesla. Tesla is beating them up and taking their lunch money right now and will continue to do so. The "Tesla killers" they're introducing are turning out to be pale imitations. Legacy car dealers are resisting selling the EV offerings they do have. It's GM and others that are closing production plants, not Tesla.

There are some legitimate criticisms to level at Tesla: 1) Constant price changes are ticking off current and prospective owners; 2) Tesla's idea to improve service by going digital reducing human interaction between the company and its customers is wrongheaded; and 3) You don't sell someone something for several thousand dollars (i.e. Enhanced Autopilot) and then take it away a couple of years later just because it interferes with what you're doing now versus then; 4) You don't fire people left and right every few months for this or that reason because it's convenient at the moment, one of Tesla's biggest advantages has been the esprit de corps of its workers and this being eroded.

All that said, in short, don't believe the shorts. They're pretending to hold a royal flush when all they have is a pair of deuces. They can depress the stock price from time to time, but it's temporary at best.

Tesla-David | 21 June 2019

Thanks @dmm1240 for the great analysis/summary of Tesla's position. Totally agree!

dmm1240 | 21 June 2019

Glad you agree and thanks for reading.

TabascoGuy | 21 June 2019

Very nice perspective dmm. I think the only thing that I would disagree with is number 4. Although it is difficult to do en masse, sometimes some people need to be let go. I think I heard the term "scraping the barnacles" tweeted. Tesla has a pretty vigorous vetting procedure for hiring new employees but some people are just better at interviewing then they are at working. I think that they do need to be weeded out however possible.

TabascoGuy | 21 June 2019

*then = than

greg | 21 June 2019

The latest short theorem (as I have been predicting would happen), is no longer the old "a lack of demand" story.
Its now, grudgingly admitting that there is enough demand - but they counter that theres a lack of PROFITABLE demand.

That argument is the old "Electric Cars can't make money on their own" argument.
Rehashed. For the umpteenth time. Enough already.

So they shorts now argue that Tesla can make as many cars as they want, but they won't make enough money on them so will be in the same boat as if the demand was low.

And in short, they'll end up running on the hamster wheel faster and faster and going nowhere much.

Examples pop up regularly showing how the Average Selling Price (ASP) for Teslas is declining each quarter.
Without considering that maybe the ASP has come down precisely because of the cost reductions?

That were long predicted would happen, and have happened. Which are allowing Tesla to introduce the lower price point cars. Exactly as they said they would do. All along. Hence why we have SR+ [and the SR, off menu] introduced later not from day 1.

Only Tesla knows what the true cost per kWh of their cells and packs and costs of their drive trains are. These costs are without a doubt the "engine room" of profitability for any EV maker.
Those costs for Tesla are coming down for sure, even if the other costs of the car are not. This means either the profits are going up on the cars they sell, or the profits are maintained, even as growth continues.

Because they make their own cells,packs and drive trains their profits are protected far more than any other EV manufacturer. Even as ASP comes down. Even without Federal Tax Credits - which end up in the buyers hands, not Teslas after all. And most sales now are international sales, which don't have the same level (or in many cases, any) "tax credits" to goose sales.

But no matter what those costs/profits are now, Tesla fully controls its destiny here. They're not at the mercy of some third party supplier like LG Chem or Samsung for their cells [or for many their cell production leftover].

So Tesla can, and is making the packs and drive trains cheaper, bigger, faster, more economical - and all at same time. And they will reveal their hand.

But those who can actually read more than a headline, and can read a balance sheet or a P&L will be able to discern that information, from the quarterly results filings, long before the FUDsters and shorts will believe it.

In short this theorem is as "bunk" as the history that Henry Ford disclaimed in his day.

Madatgascar | 21 June 2019

Well for #1 the bears will point to the dropoff between 4Q18 and 1Q19 as proof that demand has peaked. Tesla has had to stimulate sales by cutting prices, which in itself proves demand is falling off. Everyone who wants a Tesla has now bought one, and the fact that the value proposition just keeps getting better is going to turn people off.

#2 - Gross vehicle margin means nothing if you spend all that and more on stuff other auto manufacturers don’t have, such as showrooms, superchargers, etc. Debt load and the China uncertainty is pretty scary. I need a better argument before I feel comfortable with Tesla’s financial situation. Personally I think they can continue to raise money and grow through it, but it’s far from clear sailing.

Madatgascar | 21 June 2019

My #1 is of course sarcasm. Anyone can see trends will continue in Tesla’s favor.

jimglas | 22 June 2019

But the Etron is a tezlakiller!

Uncle Paul | 23 June 2019

Simple reason for Tesla lowering prices of their vehicles is a combination of compensating for the reductions in Federal Tax Credits, along with capturing their reductions in costs due to efficiency.

The cars are getting better all the time, and pricing has remained relatively stable on an after tax basis.