The Tesla Commentary No-one Else Seems to Want to Give

Tesla continues to lead a charmed life – in the media, although not in the real world.

Immediately before its third quarter earnings report (announced on Wednesday evening this week), analysts were projecting that it would beat expectations.  The reality, announced on Wednesday night?  Their earnings were indeed a long way from analyst projections – but in the wrong direction.  They went way deeper into loss making territory, reporting a 28% larger than expected loss, to what became the company’s worst quarterly loss, ever.

So, what do you think the headlines from financial commentators were?  News clips such as the one in this article headlined themselves as ‘Tesla beats on top line’ – due to a trivial 1% increase in gross revenue.

Which is more meaningful?  A 28% worse net loss, or a 1% better gross revenue figure?  Indeed, isn’t the 28% deterioration in the loss all the more significant because it can’t be blamed on lack of sales?  What is driving Tesla’s huge loss?

The clip linked above also glowingly reports that Tesla says it expects to be producing Model 3 cars at a rate of 5,000 a week by the end of the first quarter of next year.  But it fails to point out that this was promised to happen in/by December this year.  So rather than being a laudable achievement, it is a regrettable three-month slip in timings.

As for Tesla’s promise to increase production still further to 10,000 cars a week in 2018, that promise has now been withdrawn completely.  Few have commented on that.

All the articles I read are also silent on Tesla’s October deliveries of their new Model 3 cars.  To put the October target into focus, Tesla had earlier predicted it would deliver 1500 of the Model 3 cars in September and ramp up to 20,000 a month in December.  So something in the order of 5,000 for the month of October would be on that curve.

The actual number of Model 3 cars produced, which you’ll not see mentioned in any of the main stream media articles, was 145.  That’s about 3% of what might have been expected.  Surely that’s worth a headline, rather than ignoring it completely?

Now it is true that making up the shortfall in deliveries won’t take long when Tesla finally do get to a production level of 5,000 cars a week.  While we are seeing now four months of appalling production numbers, these four months of delays will result in little more than a week and a half of delay when the cars are rolling off the line in volume.

But if we assume that November will see a shortfall of closer to 10,000 cars, and December a shortfall also of 10,000 or more cars, and possibly the same for January and February and a 5,000 shortfall in March, then probably most people are looking at two to three months of delay in delivery.  Perhaps not too terrible for a car that you’ve been waiting for a long time already, but a huge contrast to Tesla’s bold promises, and something the media are willfully turning away from noticing.

This two to three month delay also means that any lead the Model 3 has on competing vehicles is being further eroded.  It was one thing to excitedly place a deposit on a Model 3 when no other cars were available as alternates.  But with the Chevrolet Bolt now available pretty much everywhere in the country with short or no lead times, and with the new Nissan Leaf expected to start appearing in dealerships at the end of this year, potential Model 3 buyers will find themselves having to choose between waiting perhaps a couple of years for a Tesla or being able to buy a Bolt or Leaf off the showroom floor.  That’s a change that will not be to Tesla’s advantage, and a change that will only continue to get worse as more and more electric vehicles continue to appear from more and more car companies.

Another amazing statement was that Tesla will reduce the number of Model S and Model X vehicles it produces in the current quarter, ostensibly to allow it to focus on bringing the Model 3 production levels up.  That’s a statement that calls for scrutiny, because on the face of it, there is no sense in it whatsoever.  How is it that running their Model S and X production lines at full speed prevents them from also ramping up their Model 3 line?

It is worth noting Tesla has been continually excusing its sales figures of the Models S and X, maintaining that the quantities sold are only a small part of the total market demand which it is allegedly struggling to meet.  We have been told, on a very regular basis, that they’ve been constrained by production issues and shortages of components.  Whatever the reason, the reality is that the Model S has been experiencing close to level sales figures for close on 18 months, and only very mild growth since their initial production ramp.  The newer Model X has also settled into fairly stable monthly sales too.

If Tesla is telling us that for years it has been unable to address its production constraints, then that’s cause for genuine concern.  But if there actually isn’t a wellspring of additional demand for their S and X models, that’s also a cause for concern, remembering that this is a company with a market capitalization greater than Ford or GM, presumably because its investors are expecting either enormous profit or enormous growth.  Neither has yet to happen.

Never mind the disappointing figures in the past.  Now we see Tesla is voluntarily reducing its future production of the two vehicles it currently sells.  Who would do that if the market demand was there, and if the vehicles were profitable to produce/sell (as they presumably are at their very high prices)?

Is there another obscured truth here which few dare hint about – that the Models S and X have never been more popular than their sales figures truly show, and are now starting to fade, with the ever greater presence of competing makes and models – either already released, or getting closer and closer to release by other companies?

Let’s look at actual Tesla sales.  Here’s a chart reporting on monthly sales of the two Tesla models plus some other electric vehicles too, starting in December 2012, ie, five years ago, and not long after the model S started being delivered.

Okay, so that’s a really messy chart, isn’t it.  About the only thing you can see are the enormous peaks and troughs, perhaps due to Tesla’s fixation on quarterly results and mad sales scrambles in the months ending each quarter, followed by a huge depression in sales the next month, the first of the next quarter.

I tried smoothing it to a rolling three-month average, but it was still very spiky.  Making it a rolling six-month average was better, but it was only when I extended it to a rolling twelve month average that the distorting effects not only of quarter-ends but also of year-ends became less significant.  It does however also incorrectly suggest that the Model X sales are still increasing due to the longer time it takes for steady-states to appear.  The flat sales of the Model X become more apparent in a six month chart.

A couple more comments, particularly on the second chart.  The hybrid Volt is starting to drop in volume, probably due to buyers switching to the Bolt.  The Nissan Leaf is plunging in sales numbers, due to the incipient arrival of the new model Leaf which promises to be very much better than the current model.

And the loveliest and smoothest line of all on both charts?  That subtle grey one, with the widely underappreciated Chevy Bolt steadily growing in monthly sales volumes for eight months in a row, and in October selling more than both Tesla models combined.  More October sales analysis can be found on this excellent site.

Why does the mainstream media go so easy on Tesla?  Jim Cramer seems to see things more clearly – here’s a fascinating article that first plays a commentary from him which I wholeheartedly endorse, followed by an anodyne series of glib statements by a different analyst.  Are the two commentators talking about the same company?

Tesla’s share price dropped 6.8% on Wednesday.