Whitney Tilson’s email to investors discussing that the Tesla Model Y looks like a beautiful car, but will the customers buy it or go for the Model 3.
Q4 2019 hedge fund letters, conferences and more
Tesla Model Y Looks Good
1) Comments from a friend:
Corsair Capital, the event-driven long-short equity hedge fund, gained 6.6% net during the second quarter, bringing its year-to-date performance to 17.5%. Q2 2021 hedge fund letters, conferences and more According to a copy of the hedge fund's second-quarter letter to investors, a copy of which of ValueWalk has been able to review, the largest contributor Read More
Here is the Model Y order/delivery tracker sheet: https://docs.google.com/spreadsheets/d/1mM8-WVTzJ74qgHZhwtLPpKtzAyCCXTDofOFpFUsqdiA/edit#gid=0
I am amazed at the high percentage of people who are taking delivery of the Model Y, who placed their orders just in the last month or two.
Yes, some ordered already in March-April 2019, and at various points between now and then, but... what was the point? You could have ordered one 2-4 weeks ago and you'd be taking delivery in the next 1-2 weeks.
Clearly some are changing their minds, refusing to take delivery (for now), or the absolute number of orders just isn't that high in relation to production.
His additional comments:
Here is the only hard data we have beyond February: So far, this quarter, in the 3 countries in Europe that track daily, Tesla's units sold are down 94% over last quarter (Q4 2019): 1,100 units compared to 19,330 last quarter. That's a big hole to fill.
Obviously Tesla will see increased sales in Europe in the last 3-4 weeks of the quarter. But they're deeper "in the hole" this quarter than I've seen in a long time. Lots of headwinds, including several new competitive products that became available in Europe on January 1.
The Model Y looks good. It effectively replaces the Model 3.
It Effectively Replaces The Model 3
2) My analyst Kevin DeCamp replies:
It "effectively replaces" the Model 3, except it’s a CUV and people that want a sedan will buy a Model 3. However, since it’s more expensive with similar cost I hope you are right!!!
Btw, Tesla on top of CR report once again. I guess the customers continue to enjoy all the quality issues and time spent on the side of the road waiting for the tow truck ;)
So, who has the real issues with Tesla cars?
Apparently NOT the people who own them. According to the Consumer Reports survey Tesla has the highest owner satisfaction rating of any other brand by a wide margin.https://t.co/63q9uZEwfs$TSLA#teslaissues$TSLAQ pic.twitter.com/8EHteCdByI
— Vladimir Grinshpun (@VGrinshpun) March 10, 2020
3) My friend replies:
The Model Y looks like a perfectly logical (and beautiful) car. These numbers don't indicate any success in the sales department, however. How many will Tesla sell, globally, of the Model Y in 2020? 150,000? How many of them would have bought a Model 3 if the Y wasn't available? 100,000? If so, a net 50,000 increase? Conceptually, that may be the big picture of the numbers we may see.
First of all, I think the Model Y looks great. Its exterior design will help its cause.
The Model 3 and Y are very close substitutes for each other. They’re about the same length and width, and they both carry five people.
The 3 is a sedan and it’s lower. The Y is a hatchback/wagon and it’s taller. That’s all.
Will there be a few people left who will still want a 3 instead of a Y? Yes, there will be a few. Most of those will buy the 3 because it will be less expensive.
However, most will simply buy a Y instead of a 3.
It will depend on the ultimate price difference -- let’s say Tesla lowers the price on the 3 -- but in this case it seems to me that 1+1 will not be much more than 1.3, initially. Longer-term, perhaps more like 1.1 or 1.2.
What was holding back a Model 3 purchase before, wasn’t that it was the “wrong” body style. Someone either felt adventurous and wanted to take a chance on something new, join the cult -- or they didn’t. The Model Y, as wonderful as can see that it is, and will expect it to perform, won’t add much to that equation.
Turning to Europe, there’s been the expected last-quarter-of-the-month uptick in Tesla sales -- but not nearly the kind of uptick we have seen in previous quarters. Not yet, anyway. It’s only one-third into the last month, but so far, even in the last month alone, the relatively inexpensive Model 3 is barely selling half as many units in Norway as the Audi eTron. Normally it would be opposite -- and more.
In The Netherlands, Tesla sold 12,000 Model 3 units in December (month, not quarter). So far this month, it has sold 332 units.
In Spain, a little better. 11 units per day sold thus far, which is a couple of units better than expected.
Tesla’s biggest source of upside in Q1 is the $550 million payment I expect from FCA this quarter. Divided by 190 million fully diluted shares, that’s $2.89 per share.
So, if Tesla would have otherwise lost $2.89 per share (GAAP, of course), this 100% gross margin payment alone would take the company to break-even.
Tesla could only do well on the top line this quarter if it stuffs the channel with some shady fleet sale. However, that FCA payment of perhaps $550 million would help the EPS dramatically. That risk is what’s keeping me from shorting the company quite yet.
Here is the latest about the Ford Mustang Mach-E:
Model 3 vs Y
4) Kevin replies:
The 3 vs Y is an interesting discussion.
Most will go for the Y? What about all those “stretch buyers”. The ones that traded in a Toyota Camry or a Honda Accord just to get a Tesla (~60% for the Model 3) and this is the most they EVER spent on a car? Will those people spend the extra few thousand to get the Y just because why not?
I’ve heard that the volume of car buyers doubles every cut in 5K. I have no idea if this is true, but I think your assumptions are questionable.
Again, I hope you are right because Tesla is guaranteed to make a higher margin on the Y once they get to scale.
5) My friend replies:
Well, if the Y is more expensive, and the folks -- as you say -- are stretch buyers and can't afford to pay any more, then I guess they're not going to buy the Y then. So, Y sales won't be as strong.
But, if they are able to afford an Y instead of a 3, then they'll buy an Y instead of a 3. So the 3 will be weaker.
In the earliest stages, as with all new premium car models, the a new car model's mix tends to be the richest. That's happened with the S, X and 3 alike -- and will of course be the case with the Y too.
While the quantities will be relatively small, at least initially, the Polestar 2 looks to be on track for initial deliveries accordingly:
- China in late April.
- Europe in mid-June.
- U.S. in late July.