Submitted by Gordon Johnson of Vertical Group
It Seems TSLA Has Nearly Fully Exhausted its AWD Model 3 Demand... Look out in 4Q18!!!
Summary: In conjunction with another private investor, we have put together the below analysis. In short, our analysis suggests TSLA will exhaust its Model 3 all-wheel-drive/performance (“AWD/performance”) backlog by October 2018. What does this mean? Well, assuming our analysis is right, either TSLA will materially ramp down its M3 production (which appears to already be underway), begin to sell the long-awaited short-range (i.e., $35K) option, or begin shipping a lot of cars to Europe/ROW. In any of these scenarios, we see 4Q18 as a likely “scary” outcome for TSLA (and also see a large production and/or delivery miss on-tap for 3Q18). Our analysis, done in conjunction with another investor, is detailed below.
THE ANALYSIS: As detailed here (link), using the TSLA Model 3 Order Tracker (“TM3OT”) spreadsheet, one can get a sample of the number of TSLA customers waiting for VIN numbers as well as those waiting for delivery of the Rear Wheel Drive (“RWD”) and All Wheel Drive (“AWD”) Long-Range (“LR”) Model 3 (“M3”) as of today (i.e., Exhibit 1 below shows these numbers for the RWD variant); this is found in the “Deliveries” tab of the TM3OT spreadsheet (link) highlighted above. And, importantly, for those who question this data source, we note that 9/8/18-to-9/13/18 a total of 13 M3-LR cars have been delivered (suggesting the data is being updated real-time, and, more importantly, stable).
Exhibit 1: TSLA RWD LR Configurations – 86 in Total as of 9/13/18
SO WHAT? With such a low level of M3 RWD LR cars in the backlog, the question turns to… How many M3 All Wheel Drive (“AWD”) LR vehicles are there in the backlog? Well, using the same link highlighted above, as of this morning the TM3OT website had 1,803 AWD LR cars that have been configured and waiting for a VIN or in receipt of a VIN. Where does this data come from? Well, on the “VINs” tab of the TM3OT spreadsheet (link) we add Model 3 LR AWD numbers by month, as well as the Model 3 Performance numbers by month to get to the 1,803 AWD LR configurations as of today (i.e., 9/13/18). More specifically, in Exhibit 2 below, we show how many of the 1,803 configurations are waiting for VINs (i.e., open order backlog) vs. how many have received VINs (i.e., the car is built). By way of background, the 1,803 figure we cite above is the aggregation of both those waiting on VINs and those who have received VINs.
Exhibit 2: TSLA AWD and Performance Configurations
So what does all this mean? Well, we’ve been tracking VINs assigned ÷ (VINs assigned + Waiting on VIN) to gauge/estimate the number of open order backlog for M3 AWD LR cars that have been filled. Stated differently, this gives one a leading indicator into how much demand TSLA has left for its AWD/performance cars, something we feel VERY FEW on both the sell-side and buy-side have done work on to-date (everyone is focused on supply, but we feel demand is going to potentially push TSLA into crisis, as soon as 4Q18).
In fact, below, in Exhibit 3, we show how this number has evolved, on a daily basis, more recently, using the TM3OT spreadsheet (link).
Exhibit 3: % of Model 3 AWD and Performance Configurations Filled
WHAT DOES IT ALL MEAN?: Looking to the “Production” link in the TM3OT spreadsheet, one can see that the total number of AWD/performance cars produced is 17,470 (Exhibit 4). Thus, assuming 50% of the AWD/performance orders have been manufactured, one arrives at 36K of total AWD/performance orders – we extrapolate this figure based on TM3OT production estimates from the spreadsheet, which implies an open order backlog of just under 18K (an average of ~3K M3 AWD LR Performance cars/week of production). Thus, applying our estimate that 50% of the open order backlog has been satisfied, this means M3 AWD LR Performance demand of ~18K cars (i.e., 36K × 50% = 18K) exists.
Exhibit 4: Model 3 Production Estimates
Stated differently, this suggests, assuming ~5K M3s produced per week, TSLA has just 3-4 weeks of M3 AWD LR Performance demand left, meaning demand will be fully exhausted at some point in Oct. 2018 (yes, you heard that right). As we’ve been saying for some time now, it is our opinion, based on the analysis above, that TSLA has formidable demand constraints at present. While everyone is focused on supply and 5K M3 cars/week, as these demand headwinds become increasingly clear, we expect TSLA’s stock to come under considerable pressure. Caveat emptor.
WHERE WE COULD BE WRONG IN THE ABOVE ANALYSIS? We note a couple of potential push-back points from the bulls, namely:
- The TM3OT spreadsheet is a sample of total orders; thus, should the order rate being processed in the TM3OT spread sheet (i.e., roughly 5% of total orders) differ from that of people not putting their numbers into the spread sheet, via the Tesla Motor Club (“TMC”) website, our conclusions could be off – we are comfortable with our conclusions given, as detailed in Exhibit 4 above, how accurate the TM3OT has been historically;
- This analysis looks at just the backlog of AWD/Performance M3 figures; along these lines, given TSLA has other demand streams, namely: (a) international reservations, (b) eventually, the short range (“SR”) M3 (i.e., the “coveted” $35K car), as well as (c) their ability to stimulate demand via leases, we may be missing a large chunk of TSLA’s future sales – we are comfortable here given we believe many of these pools will be lower margin sales, and thus a headwind to one of the key reasons bulls remain optimistic; and
- There may be a difference between reported order vs. the overall population – until we see proof of this, we don’t see this as an overwhelming risk.
WHAT TO DO HERE? We would be short TSLA’s stock given the above, as well as our view that Elon Musk’s indirect guidance (via what appears to be a leaked memo to TSLA employees last week) that TSLA will double both production and deliveries in 3Q18 is mathematically highly unlikely (see this link for Mr. Musk’s prediction, and this link for an highly respected TSLA analyst repeating this guidance on national TV). What do we mean? Well, simply: (1) 2Q18 deliveries were 40.7K and 2Q18 production was 53.3K, thus a total of ~94K cars (i.e., Model S + X + 3), that (2) suggests total 3Q18 production + deliveries of 188K cars, consequently (3) assuming 50K S + X cars produced + delivered (i.e., 25K produced and 25K delivered, which would represent a -4% fall in 3Q18 deliveries y/y, vs. the -6% fall in 1H18 Model S + X deliveries TSLA has seen this year), that leaves 138K M3 cars produced + delivered, and (4) assuming this is split between 69K deliveries and 69K cars produced, using InsideEvs numbers for TSLA M3 deliveries in July + August of 14,205 and 17,800, respectively, or 32.05K in total, TSLA would have to deliver ~37K M3s in September alone, or 9.2K M3s/week. Given TSLA is nowhere near producing this level of M3s at present, we see Mr. Musk’s guidance as highly unlikely.