Tesla’s Weak QTD Deliveries Signal March Expectation Madness
Tesla’s Weak QTD Deliveries Signal March Expectation Madness
Weak Jan-Feb Deliveries Signal Big Q1 Miss In The Making
The report from EV-Sales of global electric vehicle sales for February confirmed that Tesla’s (TSLA) total deliveries at just over 14,000 were the weakest for any month since May 2018, the first month of the full ramp-up of the flagship Model 3.
So for the disastrous January and February combined, Tesla delivered about 24,900 cars, only a third of the cars it projected for the entire first quarter.
This explains the chaos and drama which dominated March as Tesla hurried through additional price cuts and layoffs, bungled the launch of a harried new online-sales strategy, and threw together a reveal of the disappointing and far-from-ready Model Y (see my reports Tesla's Plan B 2.0; Y Not and Tesla: Now We Know the Y, But Not the How and Tesla Bonds Go Boom).
Less convincing were Tesla's conveniently "leaked" teases over the past couple of weeks about a "massive increase in delivery volume" and "Vehicle Delivery Help Needed!" to get a remarkable 30,000 cars to customers the last 15 days of March.
Especially since several price cuts already this year have yet to reignite fading demand even for Model 3, much less the aging Models S and X, amid accelerating competition from stronger rivals and Tesla's alarming quality and service troubles which are driving away customers.
We've seen this quarter-end movie too many times, and investors responded last week by selling off Tesla stock and bonds to six-month lows.
Thankfully, we are just days away from finding out Tesla's deliveries for the quarter, which the company will likely report on or before Tuesday. I'm guessing it won't be pretty.
Market consensus estimates have been falling like meteors the past couple of weeks, but still seem far too ambitious versus my estimates.
Yes, it really was that bad.
Global sales of Model 3 were reported at 10,436 in February, tracking my estimate of 10,250 and up 43% versus January when sales plunged 71% versus December.
Sales of Models S and X were 3,614, up only 1% versus January sales which tumbled 77% versus December, but a bit stronger versus my forecast for a 1% decline to 3,040. January global sales of Models S and X also were revised slightly higher, so quarter-to-date total sales for all models were reported at 24,916, up 213% versus the same period in 2018. However, this was down 51% versus the first two months in the December quarter--far weaker versus Tesla's forecast for "slightly lower" sales for the quarter.
No wonder Tesla was in a panic. February sales nudged higher versus January only because of new sales opening up for the Model 3 in Europe and China.
Worse, to meet even the low end of guidance Tesla needed to boost sales in March by 275% versus February--a sequential boost it never accomplished even when it had brand new models and full energy emissions credit subsidies.
The chart below highlights the mountain Tesla must climb in March to meet its ambitious guidance and market expectations:
As I noted above, EV-Sales reported that Tesla delivered 24,916 cars in the first two months of the quarter. That's less than 1/3 of its guidance for 77,000-81,000 deliveries for the full quarter. To meet the mid-point of guidance deliveries must reach roughly 54,100 cars in March--68% of total deliveries projected for the quarter.
The market is less convinced, but even reduced expectations call for roughly 51,600 deliveries in March--67% of total deliveries for the quarter--to meet the consensus estimate.
These expectations seem unreasonably high, by historical trends. In the previous three quarters the final month contributed 45-47% of total deliveries, with March 2018 coming in with 64% of total deliveries reported for the first quarter of 2018.
I'm clearly skeptical--but even my best case estimate of 27,570 for March would contribute 53% (48% for my low-end number).
Notice also that in the final months in the December and September quarters, when Tesla made record deliveries which it says the March quarter will not meet, deliveries in the final month of the quarters were 40,567 and 37,735, respectively--dramatically lower versus numbers projected for this more difficult quarter.
I projected total March deliveries down 32% versus that record December, averaging 5,514 deliveries per week, which makes sense given fading demand even with price cuts which haven't fully offset the loss of emissions credits and Tesla's calamitous sales strategies.
However, Tesla guidance and market consensus calls for March deliveries more than 30% higher versus record December levels. This implies 10,300-10,800 deliveries per week in March versus 8,113 in December and 7,547 in September. Good luck with that.
Tesla’s guidance and market consensus estimates broken down between Model 3 and Models S+X are similarly generous versus my forecast, especially when viewed as implied deliveries per week. Tesla guidance implies projected Model 3 deliveries in March up an incredible 63% versus December, averaging 8,257 higher per week versus 5,050.
Market consensus indicates 48% higher Model 3 deliveries projected in March versus December, averaging 7,457 per week.
I project Model 3 deliveries down 9% versus December (helped by overseas market expansion), averaging 4,574 per week.
Here's what quarterly results looks like assuming my best-case estimates for March:
Not surprisingly, my estimates for revenue and profit for March remain well below street estimates, even with the higher revised numbers for Models S and X. I estimate $3.3-3.7 billion in auto segment revenue (up 25-34% y/y; down 42-47% sequentially) and $4.3-4.6 billion in consolidated revenue (up 26-36% y/y; down 36-41% sequentially), with $450-500 million in EBITDA (10.3-10.8% margin) and a net loss of $100 million versus $91 million net income in the fourth quarter and the $710 million loss last year.
Maintain “Underperform” on TSLA 5.3% Senior Notes due 2025, up a point since last week at 86.5 (8% ytw; 582 bps). That’s just 112 bps of spread per turn of estimated leverage in 2019 on potentially increased borrowing to offset cash shortfalls—hardly adequate compensation for such a volatile issuer with such precarious prospects. Given Tesla's persistent uncertainty and escalating risks, we could see 3-5 points additional downside from here.
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