In a previous article
, we wrote about how the interpretation of falling deliveries of
) Model S as a fall in demand was incorrect. The impression that
demand for Model S had peaked has been created by supply
constraints on batteries faced by Tesla. The actual backlog of
orders for Tesla far exceeds the company's production capacity.
Only when the production at Tesla's assembly plant improves, which
was 500 per week at the beginning of the year before the company
set a target of 1,000 per week, the company will be able to bring
down the lag time between orders and deliveries. In addition, a
significant percentage of the orders for Model S are from outside
the U.S., where the supporting supercharging network for Tesla's
vehicles is in short supply. As a result, the company is holding
back on orders until they can develop the infrastructure required
to support the vehicles. Tesla has been in talks with Chinese State
Sponsored Enterprise Sinopec to develop charging networks in
We have a
price estimate of ~$150 for Tesla
, which is about 25% below the current market price.
Sales In U.S. And Norway Stalling
Meanwhile, the trend of stagnating deliveries in the U.S.
continues. According to estimates by InsideEVs, deliveries for Q2
are on pace to decline by 10% compared to the first quarter.
Deliveries in the first two months of the second quarter fell to
2,100 compared to 2,200 deliveries in the first quarter. This
decline is not seasonal as deliveries for competing alternative
vehicles such as Chevrolet Volt, Nissan Leaf and Toyota Prius have
all risen in the second quarter. At the current pace, the company
will only be able to deliver 3,150 vehicles in this quarter in the
U.S.. This means that in order to achieve the guided figure of
7,500 deliveries in the quarter, the company will have to deliver
4,350 vehicles in Europe and China. The implied deliveries to China
and Europe would represent a near 50% increase from the 2,957 cars
delivered in the first quarter.
In the first quarter, sales in Norway helped Tesla beat its
stated delivery target. Norway offers many tax-incentives to
electric vehicle owners and has many charging stations where
drivers of electric vehicles can charge for free. Additionally,
many municipalities offer high-speed driving lanes and free
parking-lots to the owners of electric vehicles. With help from
these incentives, Tesla sold nearly 1,500 cars in the Nordic
country in March, according to registration figures reported by
Norwegian transportation officials. This meant that in March Tesla
delivered nearly 3 times as many cars as in January and February.
The significant jump in March was the sole reason why the company
was able to meet its stated deliveries target in the first quarter.
In the second quarter, however, deliveries are back to the levels
of January and February. The company is on pace to record ~820
deliveries in Norway in Q2, compared to 2,056 in the first
Backlog From U.K. And China Will Have To Fill Delivery
In the Q&A following the earnings announcement in Q1,
management said that in addition to selling 6,457 cars in the first
quarter, the company spent time "filling the pipeline of deliveries
into Europe and Asia." Cars that are delivered to foreign markets
take time to reach their destination, still it is surprising that
numbers early in the second quarter are so low, especially when the
company spent time in the previous quarter to fill up the pipeline.
The only way Tesla can meet its delivery target is by meeting the
backlog of orders from the U.K. and China.
Tesla differs from other car companies because it sells its cars
directly to consumers rather than through dealerships. This might
prove to be beneficial for the company in the long run, but is
currently posing problems as the limited retail footprint means
that most of its orders come via the company's website. The absence
of inventory stocked with dealerships means that it takes a long
time to fulfill the order backlog. Tesla opened its first retail
store in the U.K. late last year.. Similarly, the company only
started selling its cars in China in late April.
Despite the initial hiccups, Tesla seems set to benefit from
many incentives offered to electric vehicle owners by the local
Chinese government. These incentives include not having to
participate in an auction for number plates(which usually cost
around $10,000). Additionally, the State Grid Corp. of China
is bringing on board private capital to build charging facilities
for EV/HEVs. The plan is to make charging affordable for the
consumer with costs going as low as $0.08 (0.5 yuan) a
kilowatt-hour. China is targeting around 400,000 charging stations
by next year. As the country builds the infrastructure required to
support electric vehicles, sales for EV/HEVs could be strong moving
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