Tesla's China Sales and Market Share Continued to Shrink In August
Tesla's China Sales and Market Share Continued to Shrink In August
While China's NEV sales continued explosive growth in August, Tesla's Monthly MIC Model 3 sales fell by double-digits, again, versus last year, with likely only anemic help from its new MIC Model Y.
Tesla (TSLA) continued to struggle as I expected in China, the largest EV market in world, with August monthly sales coming in at 12,885—below my 14,000 estimate and some 57% below market consensus.
Results were up a tepid 9% y/y for Tesla versus the 168% y/y increase for the local China market combined, signaling another painful drop in market share. Chinese giant BYD Co Ltd (1211:HK) delivered 24,996, for example, up 139% y/y. That beat Tesla’s cumulative two-month total of 21,506 for the quarter so far, its lowest first two-month total versus every other quarter over the past year and down 6% for July-August 2020.
Indications are Model 3 deliveries remained sharply lower versus 11,811 in August last year. Assuming roughly 10,000, down 16% y/y, for example, indicates Model Y sales improved at 3,019 versus 2,144 in July but still trailing most every month since MIC Model Y was launched in January.
At this rate September monthly China deliveries need to hit at least 40,243—an unprecedented 212% one-month jump—just for third quarter numbers to match 61,759 for the June quarter, which was down 11% versus 69,431 for the March quarter (see Tesla China Sales Deflated in July and Plaid Sales Edge Tesla Q2 Deliveries Above 200,000).
It’s a tall order. Tesla has only managed monthly sales as high as 35,478 so far for China, and that was a rare 126% one-month surge back in March thanks to growing momentum in sales of MIC Model 3 and the newly launched MIC Model Y at 25,327 and 10,151, respectively. Then June monthly sales subsequently sunk by 21% versus March to 28,138 as that momentum notably stalled—trends which have weakened since then.
Which is why Tesla could spare a record 31,379 in excess inventory for export, some 2.4x more cars than it was able to sell locally and substantially more than was needed to meet demand in Europe and smaller markets.
The lion’s share of those exports went to Europe where only 11,581 were sold in August. Indeed, of the 55,728 cars Tesla exported from China in July-August, only 12,333 sold in Europe, leaving most of the 43,400 remaining still sitting in inventory for September where I suspect only 35,000 or so will sell.
In any case, the pressure is on for Tesla to make up lost ground in what now has to be a tremendous surge in deliveries over the next three weeks—more ambitious than usual even for Tesla. The trouble is, this clashes with accelerating deterioration of business conditions amid the relentless Covid pandemic.
So I’ll stick with my projections for Q3 deliveries flat to slightly higher versus Q2 and Q4 deliveries up roughly 5-10% versus Q3. This implies roughly 800,000-822,000 for the year, well below market consensus.
Bonds. No Bonds
I have been expecting all year that Tesla might refinance its overpriced 5.3% senior notes, potentially funded with a cheap new bond deal.
Step one happened last month when Tesla called the bonds.
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.
We'll see.
In the meantime, there are no large, liquid Tesla bond issues left outstanding so I withdraw my bond recommendation. Tesla: Not Rated.
Update: 3:26 pm 9/9/21
Yikes. More August monthly China sales data out since my report last night:
—MIC M3 sales crashed by 89% y/y to 1,309—lowest since Oct 2019.
—MIC MY recovered to 11,576; still down vs June & May
—MIC M3+MY for July-Aug down 36% y/y vs same period Q2 & down 37% vs same Q1
No word yet on M3/MY breakdown on exports. Stay tuned.
Jump Into The Fire/Harry Nilsson
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