Tesla Model 3 Sales Crashed in China in October
Tesla Model 3 Sales Crashed in China in October
Tesla stock was in free fall for days, in part because investors were alarmed that October monthly sales in China were weaker than expected. Apparently folks haven't been paying attention.
Tesla (TSLA) stock is has been in free fall for days now, in part because investors were alarmed at the report Monday night by the China Passenger Car Association (CPCA) that its October monthly sales in China were much lower than expected.
Apparently folks haven’t been paying attention because, as I long have warned clients, Tesla has been losing ground in China for most of the past year—longer than that for MIC Model 3:
Indeed, MIC Model 3 deliveries in China were tracking lower y/y all during the third quarter versus expanding sales of MIC Model Y, which launched in the first quarter. I anticipate a similar pattern to develop in Europe now that Model Y has been introduced there as of August:
This, as I have noted before, is the same pattern I’ve been tracking for years. Sales in Tesla’s legacy models have faded almost immediately when faced with its new models, and now Tesla is facing stiff new competition from strong rivals in all its markets—especially China. Its new models have also struggled to sustain sales after initial new launch and/or new market expansions even before the first anniversary of said events (I last discussed this at length in Tesla: Don’t Drive Angry, 2/8/21).
Tesla's August Sales Numbers in China Don't Add Up, 9/17/21, followed up with Tesla: Now That's More Like It on 10/15/21 and Looks like Tesla MIC Model 3 Deliveries in China Fell Sharply in Q3, As I Warned on 10/4/21.
The Devil’s In The Details
Tesla reported monthly wholesale units in China in October were 54,391, down “just”
3% versus the record 56,019 in September according to the China Passenger Car Association (CPCA).
But there’s a catch. Tesla only sold 13,725 locally in China, down 74% versus the 52,180 sold in China in September. That’s because Tesla exported a record 40,666 to inventory for later sales in other markets, mostly Europe. This was 3x more than it was able to sell locally.
MIC Model Y claimed 13,303 of those local sales in China, its second best month since it was launched in the first quarter of this year. Tesla still exported nearly as many Model Ys as it sold at 12,197. This also marked the third straight month Model Y outsold Model 3—this month by a mile.
This tracked Tesla’s multi-year pattern I’ve been following going back to Models S&X where sales dropped precipitously when Model 3 launched at scale in 2018, never to recover:
I summarized this trends again in Tesla's Don't Drive Angry, 2/8/21:
This pattern of surge, falter, and urge with expensive price cutting and incentives has characterized Tesla’s sales in all its models for more than two years, as I detailed again in What’s Going On With Tesla’s Demand? on 10/27/20.
So far, the strategy has failed to sustain same-store sales for any of Tesla’s existing models in all its major markets: the US, Europe, and China. Since 2018, Tesla has relied exclusively on incremental sales growth via new models and model expansion into new markets, plus now a new plant in China, for all its sales growth.
As a result:
Model S & X sales peaked in Q218 when Model 3 launched at full scale in the US, long Tesla’s primary market;
US Model 3 sales peaked just two quarters later in December 2018 and have been in decline y/y ever since;
Model 3 sales in Europe peaked in four quarters as of December 2019 and have been in y/y decline the past three quarters;
MIC Model 3 sales stalled by the third quarter of its first year, even after six price cuts by September 30th and seven for the full year. Sales were reignited only after China implemented another generous EV-friendly policy (which helped all its competitors as well). But…
Odds are that MIC Model Y curtails MIC Model 3 in China just as it did in the US—and as it likely will in Europe.
No its hardly surprising to me that MIC Model 3 sales slowed dramatically this year in China not long after MIC Model Y was launched.
Only 422 MIC Model 3s were sold in China in October—down 97% y/y and its worst month since October 2019.
It was a terrible start even for the first month of the quarter, typically the lowest versus the last month which can claim 60% or more for the whole quarter.
But even September, which marked the strongest month in the third quarter, was problematic. Tesla delivered a record 52,180 cars locally in China in September, exporting only 3,839. This comprised 33,033 Model Ys, its best month yet, versus 19,180 (up 81%) for Model 3.
Model 3 marked a respectable comeback in September versus the dismal 1,309 (down 81%) in August and 6,477 (down 44%) in July, but it wasn’t enough to salvage a notably weak quarter. Model 3 deliveries in for the third quarter came in much worse with than initially indicated at 26,906, down 16% versus Q2, down 49% versus Q1, and down 21% versus last year.
So even with the healthy ramp up continuing for Model Y, Model 3 struggles signal a troubling continuation of eroding sales in China—the largest EV market in the world.
And if history plays out as we’ve seen before, we could be seeing the same fading pattern emerging about this time next year —if not sooner—in MIC Model Y sales.
Tesla repurchased its 5.3% senior notes in the third quarter as I projected, though I doubt we’ve seen the last of Tesla as a bond issuer:
Now stay tuned for the second step I described: a quickly shopped, likely $2-4 billion inordinately low coupon bond deal, accompanied by a bump in credit quality ratings potentially to low investment grade (see Tesla's Car Business Finally Turned A Profit. Really. Time For A Big Bond Deal). It could even be appealing... if it’s priced at 100 bps or better.
Tesla's China Sales and Market Share Continued to Shrink In AugustUntil then, I have Tesla: Not Rated.
Contact Us:
Disclaimer
This publication is prepared by Bond Angle LLC and is distributed solely to authorized recipients and clients of Bond Angle for their general use. In addition:
I/We have no position(s) in any of the securities referenced in this publication.
Views expressed in this publication accurately reflects my/our personal opinion(s) about the referenced securities and issuers and/or other subject matter as appropriate.
This publication does not contain and is not based on any non-public, material information.
To the best of my/our knowledge, the views expressed in this publication comply with applicable law in the country from which it is posted.
I/We have not been commissioned to write this publication or hold any specific opinion on the securities referenced therein.
Bond Angle does not do business with companies covered in its
publications, and nothing in this publication should be construed as a solicitation to buy or sell any security or product.Bond Angle accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this publication and/or further communication in relation to this document.