Tesla's Still Bloated Inventory Signals June Sales May Disappoint, Along With Q2 Market Estimates
Tesla traditionally sells 50-60% of total quarterly sales in the last month—until now. Stubbornly high inventory levels signal that trend is at risk, along with ambitious market estimates for Q2
Tesla’s TSLA 0.00%↑ second quarter has been bucking a long-term trend—but not the way it would like.
For most of its history Tesla has sold roughly 50-60% of its totally quarterly volume in the last month—even the last week or so—of the quarter. The reason always given is that it spends the first part of the quarter frantically trying to produce and export enough cars to meet “insane” demand all over the world.
Until now.
Like all things Tesla, the devil’s in the details. As I have tracked ever since 2018, when it finally launched Model 3, demand fell in every market for even model Tesla produced as soon as it launched its next model. The pressure accelerated in recent years as scores of new models produced by dozens of strong rivals in every market steadily gained ground. I last detailed this again last January in Tesla's Demand Problems Aren't Going Away:
Indications are Tesla’s demand and pricing pressure will only grow through 2023 and beyond, and we saw how heavily that weighed on revenue, profit, and cash flow in disappointing fourth quarter results (see Tesla Q4: Stalling Growth, Shrinking Margins, Weaker Guidance, Mystery "Investment" on 1/29/23). Moreover, other than maybe Q2 this year, Tesla has run out of comparatively easy comps.
So I am skeptical that Tesla has solved its demand problems with dramatically large price cuts in the latest wave following several cuts and increased incentives in recent months.
This suggests to me substantially increased concern from Tesla about sales growth, if not desperation—not a sales triumph. It also explains why Tesla has backed off two years of guidance calling for better than 50% y/y growth in deliveries, with management’s target indicated at 37% for 2023.
And, as I long have noted, Tesla has stubbornly compounded its problems for several years now by starving investment into new models that could take up the baton. Instead it continues to produce the same paltry and increasingly aging fleet of just four models still largely based on its vintage 2012 Model S. Even worse, Teslas still persistently rank near the bottom every year in quality and reliability—plus terrible customer service.
No wonder recalls and government investigations and lawsuits against Tesla have been piling up.
The confetti stopped falling in 2022, as I predicted, when it became clear that Model Y is Tesla’s last model still growing sales. Models 3, S, and X have essentially stalled with no new markets to tap, and struggle even to meet same-store sales. Model Y’s ramp-up momentum began to slow markedly, as I expected, by the end of the year.
Sure enough, Tesla began in the fourth quarter what has become several rounds of dramatic price cuts plus expensive discounts and incentives to boost sales (see Tesla Q4: Elon's Burning It All Down).
It wasn’t enough. Tesla’s reported deliveries trailed market estimates in the critical fourth quarter and again with the first quarter this year. (see Tesla Q4 Deliveries: Bigger Miss Than Even I Expected and Tesla Q4: Stalling Growth, Shrinking Margins, Weaker Guidance, Mystery "Investment" and Tesla Q1 Deliveries "Beat" Rapidly Falling Market Estimates But Miss Management Guidance.)
Conditions seem little better so far through most of the second quarter, even with prices are down some 20-30% y/y—versus industry comps still up y/y. Prices on used Tesla have plunged by more than 30% y/y versus the market average down 4%, per CarGurus.com.
Yet, as I expected, Tesla dropping its prices and even slowing/halting its production has not stopped the alarming increase in inventory, which has continued to rise versus a growing excess at year-end:
Tesla Global Inventory
This, I believe, has also distorted normal sales trends for Tesla. Instead of being restricted by supply of cars which, in the past, has kept sales comparatively low early the quarter as production caught up for the big finish at quarter-end, Tesla started the second quarter with ample and increasing inventory.
Far more than it needed, given that inventory has climbed significantly higher. Shipping the excess out of China, where it exported more than it sold locally, has piled up several thousand in unsold inventory elsewhere, primarily Europe. Recall the new Berlin plant also has started ramping up production of Model Y.
Notice in the chart below Model 3 inventory remains stubbornly high in Q2 and Models S & X have pooled alarmingly.
Tesla Europe Inventory
US inventory languishes with only Model Y showing signs of life.
Tesla US Inventory
This doesn’t bode well for the expected strong finish to the quarter in June, when I suspect deliveries will track lower versus April+May and be down y/y. If so, this indicates total deliveries for the quarter potentially lower versus first quarter results.
If so, even my below market estimate for the quarter may be too high at 426,202, up 67% y/y but little changed versus 422,875 in Q1. Market consensus looks downright ebullient at 446,000 (up 75% y/y).
I estimate second quarter revenue at $22 billion (up 30%), with reported EBITDA at $3.7 billion (down 2.2%; 16.8% margin) and net income at $2.1 billion (down 7.2%).
Stay tuned.
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