Tesla Model 3 Deliveries Only Up 3% Sequentially Despite Entry Into Various New Markets

Whitney Tilson’s email to investors discussing why are i-Pace and e-tron sales so weak in the U.S.?’ Analysts on Tesla Inc (NASDAQ:TSLA); recognizing emission credit revenue.

1) My analyst Kevin asked Anton Wahlman:

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Still trying to figure out why I-Pace and e-tron sales in the US are not great given the 7500K tax credit. I would guess for the I-Pace it’s the Jaguar brand combined with the glitchy infotainment system, but for the e-tron I don’t get it.

The Model S and X are clearly long in the tooth, but they easily outsell these two models with a much lower tax credit.

I totally get both of your points that it is not about the e-tron or I-Pace, but the hundreds of EVs coming down the pike (and this is the most compelling part of the short thesis from my perspective), but just trying to figure out what is going on here.

I know Anton follows this way closer than me. Does this have something to do with the e-tron recall or battery shortages? What about the I-Pace. I look forward to your thoughts.

Here was Anton’s reply:

When it comes to the Jaguar i-Pace in the U.S., the biggest issue is a combination of the Jaguar brand position in the U.S. market, and general lack of consumer awareness of the product’s existence. We are knee-deep into this thing and know all about it. Most general consumers barely think Jaguar exists anymore, or are more aware of the “electrical problems” of Jaguars from the 1970s and 1980s.

Objectively, as far as the product is concerned, the car is one of the smaller SUVs, but not so small that it wouldn’t find a market. The infotainment system is just fine, especially as most people use Android Auto and Apple CarPlay anyway.

When it comes to the Audi eTron in the U.S. market, I think it was mostly about the disappointing headline range number (204 miles). Most people don’t understand the reserve, or appreciate the longevity and serviceability built into that battery pack. So, they think 204 miles is 30 miles worse than the Jaguar’s 234 miles.

Real-world tests have shown the Audi and Jaguar delivering similar range in practical driving, so the Audi number understate the “broad apples to apples” probably by approximately 10%. Yet, it became a headline and doesn’t look good.

I think the bigger explanation resides in the comparison between how both the Jaguar and Audi numbers look in Europe versus how they look here in the U.S. In Europe, they are considered larger cars than Americans do. They are also not as concerned with range, as European usage patterns tend to be much shorter.

Perhaps most importantly, Audi and Jaguar are “home” European brands, which if you combine that with caution regarding Tesla’s ability to service and repair in a timely manner, lead to superior sales numbers over there. The Audi has the same range number, and the Jaguar has the same infotainment system, in Europe as they have in the U.S.

Audi has also launched a lower-range version of the eTron in Europe. They are starting to take orders now, and volume deliveries are scheduled to begin when the European EV quotas take into effect, which is January 1. With the lower price, sales of the Audi eTron could easily double in Europe, compared to the last few months.

Here are the Audi 2019 numbers:

Audi eTron	2019-01	2019-02	2019-03	2019-04	2019-05	2019-06	2019-07	2019-08	2019-09	TOTAL
Germany	407	155	478	174	322	246	530	366		2678
Norway	8	110	680	371	530	598	527	457	506	3787
Sweden	0	25	47	43	80	75	49	75	87	481
Netherlands	2	0	40	55	160	102	118	86	142	705
Belgium	13	40	59	59	100					271
Switzerland	0	0	93	33	48	58	77	127		436
Austria	0	0	53	19	36	38	78			224
France	0	14	140	22	17	30				223
Italy	0	10	39	12	11	6	0			78
Spain	0	9	62	14	6	22	15	7	7	142
Denmark	0	0	2	8	16	28	20	22		96
Finland	0	14	9	10	13	24				70
Iceland	0	0	4	6	7	8				25
Ireland	0	0	7	6	3	4	13			33
Slovenia								2		2
EUROPE	430	377	1713	832	1349	1239	1427	1142		8509
"Missing" Euro	1	10	78	121	127	300	329	150		1116
USA	0	0	0	253	856	726	678	593	434	3540
Canada						113				113
N. America	0	0	0	253	856	839	678	593	434	3653
TOTAL	430	377	1713	1085	2205	2078	2105	1735	434	12162

Carsalesbase	431	398	1791	990	1200	1554	1715
EV Blogspot	431	387	1791	953	1476	1539	1756	1292		8333
Europe YTD	431	818	2609	3576	5061	6600	8356	9648

New Zealand							28	30		58

Europe	431	387	1791	953	1476	1539	1756	1292		9625
N. America	0	0	0	253	856	839	678	593	434	3653
TOTAL	431	387	1791	1206	2332	2378	2434	1885	434	13278

And here are the Jaguar 2019 numbers:

Jaguar iPace	2019-01	2019-02	2019-03	2019-04	2019-05	2019-06	2019-07	2019-08	2019-09	TOTAL
Germany	16	92	106	85	86	56	89	82		612
Norway	79	391	442	350	510	331	133	231	189	2656
Sweden	16	11	33	33	23	9	13	11	13	162
Netherlands	15	5	40	11	26	13	16	32	39	197
Belgium	36	50	61	62	37					246
Switzerland	14	39	70	69	55	41	31	26		345
France	31	47	42	53	39	40				252
Italy	12	14	29	20	22	17	19	4	27	164
Spain	19	27	20	6	22	16	20	6	5	141
Portugal	20	34	44	46	48	50	44	39		325
Finland	19	11	7	16	13	1				67
Denmark	0	15	10	16	4	16	1	5		67
Austria	15	25	28	39	20	16				143
Iceland	3	4	5	6	7	8				33
Ireland	6	7	5	3	4	4	6			35
Czech	1	2	3	7	12					25
Russia	15	13	11	10						49
EUROPE	317	787	956	832	928	618	372	436	273	5519
"Missing" Euro	245	147	604	397	424	448	449	280		2994
USA	210	186	212	237	228	236	213	160	160	1842
TOTAL	527	973	1168	1069	1156	854	585	596	433	7361

Carsalesbase	528	872	1503	1195	1375	1004	774
EV Blogspot	562	934	1560	1229	1352	1066	821	716		8240
Europe YTD	562	1496	3051	4284	5637	6703	7524	8240

New Zealand	0	3	0	0	0	46	5	7		61

Europe	562	934	1560	1229	1352	1066	821	716		8240
USA	210	186	212	237	228	236	213	160	160	1842
TOTAL	772	1120	1772	1466	1580	1302	1034	876	160	10082
Official	1011	1388	2044	1419	1594	1621	1109			10186

2) Below are various analyst reports from yesterday on TSLA’s delivery number:

Street Takeaways - Tesla Q3 Deliveries

Thursday, October 03, 2019 04:20:59 PM (GMT)

Overview:
- Shares are trading lower (6.0%) this morning following TSLA's Q3 production and deliveries update, prompting some pessimism on the Street regarding forward outlook as deliveries of 97K missed the heightened 100K threshold, despite it being a record deliveries number. Deliveries on luxury Model S/X's were down (2%) sequentially, missing consensus by 280 units, while Model 3 deliveries were 2,590 units above consensus at 79.6K.
- Some analysts are emphasizing the proven market demand for the Model 3, while some express skepticism regarding future growth opportunities, as Model 3 deliveries were only up 3% sequentially despite entry into various new markets. Analysts are also mixed on the projected effect of increased lease rate on revenues, with some analysts viewing it as a tailwind to financials while others expect it to weigh on revenues due to management's indication of inability for lease end buyout. Going forward, analysts point to TSLA's ability to both generate and meet demand to drive future growth, as the autonomous/ADAS space becomes increasingly competitive. Some analysts are looking to see if the Chinese market and Giga 3 factory in China prove to be sufficient demand generators to offset the stalling growth in mature markets.
Valuation:
- Current valuation vs 5-year avg & sector avg
- P/E NTM 130.1x vs 184.2x & XLY avg 19.4x
- EV/EBITDA NTM 16.2x vs 29.6x & XLY avg 12.5x
Sell-side ratings:
- 35% Buy, 32% Hold and 32% Sell rated vs Motor Vehicles peers ratings mix of 45% Hold, 41% Buy, and 14% Sell rated.
- The average target decreased (0.4%) to $268.82, implying an +17.4% premium to this morning's levels near $243 and compares to Motor Vehicle peer's implied return of 20.3%.
Forward Estimates:
- FY19 (Dec '19):
  - Revenue $24.50B, +14.2% y/y
  - EPS ($4.20), +216.1% y/y
- FY20 (Dec '20):
  - Revenue $30.21B, +23.3% y/y
  - EPS $3.58, (185.1%) y/y
Analyst Commentary:
- JMP Securities analyst Joseph Osha-lowers rating
  - As previously reported, downgrades to Market Perform rating from Outperform as they question whether demand growth generation might be leveling off, due to inability to identify operational deficiencies that would have prohibited the production of additional units had the demand been there - notes this is an issue to valuations, which have been using forward multiples.
  - Notes production of 96.2K essentially equated to Q3 deliveries of 97K, indicating TSLA may be preparing for a less dramatic Q4 due to lagging inventory buildup.
  - Expects FY20 Model 3 deliveries to grow at a more modest rate, (59k) units than previous estimates, revising down expected figures for revenue, and EBITDA by ($2.7B) and ($675M) respectively; highlights Model 3 now accounts for 80% of business, making it primary catalyst for overall performance.
  - Lowers rating to Market Perform from Market Outperform.
- RBC Capital Markets analyst Joseph Spak
  - Emphasizes that media report of email leak skewed expectations bullishly, with Q3 deliveries of 97.0k were in line with estimates, and +2% consensus, yet failing to reach the whisper target of 100k
  - Notes that generalization of sales masks regional performance, with growth in Model 3 deliveries in regions like the Netherlands and the UK masking poor performance in mature US market.
  - Highlights increase in model leasing - Model S/X to 15% from 10%, Model 3s to 8% from 5.6% - will have impact on revenue; notes unknown effect offset from Smart Summon feature roll-out, but expects no boost to cash flow.
  - Emphasizes that while Q3 deliveries of 97.0k were a record performance, to hit low end of FY19 guidance of 360-400k deliveries, Q4 needs to reach 105k units - +8% of Q3 - notes bulls highlight increase in order backlog as possible catalyst
  - Believes auto revenue will report q/q and y/y declines, despite record deliveries; points to deliveries outpacing production - two quarters in a row - as possible risk given unexpected demand increase.
  - Target at $190 - based on 10x exit 2028E EBITDA; maintains Underperform.
- Nomura Instinet analyst Christopher Eberle
  - Highlights Tesla's US Model 3 sales has maintained its > 50% of market share in the entry luxury sedan segment since 4Q18, demonstrating continued consumer enthusiasm for both the model and the overall TSLA brand.
  - Believes increase in leases to be a margin tailwind, as lease accounting produces higher gross margins than cash sales noting gross margin in Q2 for lease was 49% vs 17.7% for cash sales.
  - Expresses optimism regarding TSLA's acquisition of DeepScale, viewing it as an acqui-hire that will readily integrate with the in-place Autopilot group and advance self-driving efforts.
  - Price target at $270 - based on 9.0x FY21 EV/EBITDA; maintains Neutral rating.
- Cowen analyst Jeffrey Osborne
  - Highlights Q3 growth for Model 3 deliveries was +42% y/y - due to all sales being in N.A.- but only 3% q/q despite entering multiple new markets, while Model S/X sales were down 2% from Q2 and 37% y/y.
  - Surprised by the 8% rate of lease on Model 3's due to prior indications by management that lessee's would be devoid of buyout option at end of term.
  - Believes inventory to be down 4% sequentially given production numbers, based on estimates that ~8.5K Model S/X and ~15K Model 3's either unsold or in transit.
  - Skeptical on projected demand growth in Chinese market - due to low visibility - for locally produced Model 3's, and it's ability to account for plateaus in maturing markets, and ramifications of the expiring US tax credit in 1Q20.
  - Target at $140 - based on 12x FY21 EV/EBITDA; maintains Underperform rating.
- Needham analyst Rajvindra Gill
  - Expects declining Model S/X sales and lowered Model 3 ASPs, to be a significant headwind to gross margins, given S/X current margin range of 25-30% on higher price points, and Model 3's volume at 79.6K out of 97K.
  - Believes TSLA's competitive advantage in ADAS/autonomous driving space is fleeting, as leading OEM's such as Toyota and Mercedes begin to offer L2+ Advanced options.
  - Cautious regarding TSLA's capital structure and ability to maintain positive FCF despite the recent equity financing period, given decelerating revenue and margin pressure.
  - Maintains Underperform rating.

Industries: Auto & Truck Manufacturers

Primary Identifiers: TSLA-US

Related Identifiers: TSLA-US

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From Weiss Harrington:

Last night, Tesla (TSLA) announced third quarter deliveries totaled approximately 97,000 vehicles – 17,400 Model S/X and 79,600 Model 3. While consensus delivery expectations were roughly 96,000, a ‘leaked’ e-mail from Elon Musk widely circulated last week boosted expectations, stating “We have a shot at achieving our first 100,000 vehicle delivery quarter, which is an incredibly exciting milestone for our company!” The e-mail sent shares from $228.70 last Wednesday to $242.56 by the close last Thursday, only to see reality set in today ($229.05 currently). Once again Elon Musk is creating needless volatility.

Model S and X deliveries were disappointing – coming in at 17,400 versus 17,722 last quarter and our expectations of 19,100 - a major blow to Tesla’s hopes of being profitable in the third quarter: Model S and X profitability are roughly 3X that of the Model 3 (in terms of gross profit in dollars). The following table shows Tesla’s ‘Model S Equivalent (MSE)’ sales, a construct we believe is useful in translating delivery data into profitability:

As the above table shows, we estimate Tesla’s third quarter ‘Model S Equivalent (MSE)’ sales increased from 41,149 in the second quarter to 41,636 vehicles in the third. While we do not yet have European sales data for September (which helps reconcile Asian and North American Sales) or complete estimates for third quarter vehicle options uptake, we currently estimate Tesla will report a third quarter GAAP loss of $1.47 per share excluding ZEV or European emission credit revenue (but including $108 mln of GHG credit revenue). We should also point out that third quarter earnings were significantly by adverse currency movements, which reduced earnings by an estimated $87 mln (or $.48 per share).

We believe Tesla has a great deal of flexibility in recognizing emission credit revenue as well as in harvesting the nearly $300 mln of one-time restructuring charges taken over the past two quarters, including the $121 mln lease vehicle write-down in the first quarter. That said, trying to make the third quarter profitable is a bridge too far – even for a company with a 34 year old CFO - therefore we forecast Tesla will only harvest $35 mln of ZEV/European emission credit revenue in the third quarter, resulting in a headline GAAP loss of $1.27 per share on revenue of $6,436 mln. Consensus expectations of call for GAAP earnings of $-1.48 per share on $6,360 mln revenue.

Turning to cash flows, we were surprised (and perhaps Tesla was too) that production (96,155 vehicles) was inline with deliveries (97,000 vehicles). Given Tesla began the quarter with an estimated 10,300 Model S/X vehicles in inventory and an estimated 14,800 Model 3s in inventory – all of which were likely written down in Q1 and Q2 – we expected an inventory reduction of several thousand vehicles, significantly boosting earnings and leading to positive cash flows. As this did not happen, we currently anticipate third quarter cash burn of $270 mln rather than breakeven free cash flow which could have been achieved by liquidating 5,000 or so vehicles.

Conclusions

Tesla’s third quarter delivery announcement leaves us with the view that consensus estimates for the quarter are roughly inline – meaning we see no opportunity for a trade into the quarterly results in either direction (technically Tesla could achieve third quarter profitability, but they would need to record roughly $250 mln of ZEV/European emission credit sales and/or accounting manipulations).

We currently anticipate we will downgrade Tesla shares to ‘Sell’ either on a meaningful share price rally (above $260) or – more importantly – as we move into 2020 and Tesla faces the expiration of U.S. EV buyer tax credits as well as increased competition from other manufacturers, most notable Porsche.