The WSJ story was about a new Tesla leasing deal, but reporters Mark Ramsey and John D. Stoll also noted that Tesla’s U.S. sales, at 10,335 vehicles, are down 26% through September, compared with the same period in 2013.
For what it’s worth, at the beginning of September, TheStreet tabulated exactly the same percentage decline for just the first half of 2014
The WSJ also cited WardsAuto data that indicates the sales decline occurred even as Tesla production has increased 10% since the beginning of the year.
And the WSJ quoted a WardsAuto analysts who said that the drop in Tesla sales could be chalked up to “temporarily satiated” demand for the “niche” Model S.
But Musk took to Twitter to disagree — September sales are up 65%, he tweeted. Tesla sales for September 2014 have been estimated at 2,500, a big month for the carmaker. September 2013 sales likely came in around 1,500 which was consistent with Tesla’s sales pace for the year.
Tesla reports earnings for the third quarter next month, so we should get more clarity on these issues, as Musk is typically forthcoming with analysts when asked about sales and production data.
But here’s where the weird stuff comes in. Tesla Model S production is behind where it might have been at this point because the company shut down production at its Fremont, Calif. factory for two weeks to retool the assembly line to build the Model X SUV, due out next year. Tesla has acknowledged this — the carmaker anticipates that it will deliver about 2,000 fewer cars in the third quarter than it would have without the shutdown (this Forbes post breaks down the numbers).
Tesla takes a $US2,500 deposit for every Model S that a customer orders for sale or lease. At the moment, you have to wait until December to get your car, if you order it today. When Tesla delivers the car, they book the sale (in the case of the lease, it books the revenue all at once, by the way, as Tesla is paid in full by a bank that manages the payments). And even though the company should produce a bit more than 26,000 Model S sedans through the third quarter, it won’t be able to deliver them all.
These numbers, by the way, are for all Tesla production, some of which is destined for other markets, such as Europe and Asia.
Overall, Tesla is aiming to sell 35,000 Model S’s in 2014. The WSJ reports that half of those sales should be in the U.S. — and that this could create a problem: “Tesla would have to sell about 17,500 models in the U.S. At its current sales pace, the auto maker will miss that target by a wide margin — and will have to double its sales pace to hit its goal.”
However, if you review the numbers on a quarter-by-quarter basis and look ahead to the end of the year, Tesla has said it can deliver 6,600 cars by the end of the year. So in the U.S., Tesla could conceivably miss its 2014 sales goal by several thousand cars.
But the point is that even if Tesla does miss its U.S. sales target, it should still be able to produce the cars. And because they’re pre-ordered, the car deliveries will come in the first quarter of 2015.
Tesla’s sales pace actually seems fine, as long as Tesla continues to sell cars at a rate that mirrors a 2014 monthly production output of around 700 cars (and that’s supposed to increase next year). Ultimately, this looks more like an accounting debate embedded in a story about leasing — not a verdict on whether Tesla can build and sell its cars.
But what about flagging demand? Musk actually addressed this issue directly, during Tesla’s second-quarter earnings call. He’s worried about demand, but not in the way one might think — as he told Goldman Sachs’ Patrick Archaumbault:
We can drive demand up at will. But if drive it up too much, then people would get upset with us because they waited too long for their car….[W]hen I was visiting in China, the only unhappiness I saw was…because customers were upset about waiting too long for their car. So it’s like, boy, we better not stoke demand in that situation.
Tesla doesn’t really seem to be having any trouble finding people who want to buy its cars. The trouble is more with being able to produce and deliver the cars on a schedule that matches what a customer might expect from an established automaker.
As for the car being a “niche” product, no one disputes that. The Model S is a $US100,000 luxury sedan. Its contribution to Tesla’s sales could flatten at some point, but that’s why Musk wants to bring a cheaper, mass-market car — the Model 3 — to market by 2017.
There is a theory that Model S demand is tapped out domestically and that Tesla has been looking to markets outside the U.S. to find new customers. But doing that makes good business sense, if you look at the Model S as a luxury car and incorporate robust estimates for new-market growth in that segment. General Motors is trying to capitalise on this with Cadillac in China, and Ford is reviving its Lincoln brand largely to have a luxury product to sell in the Middle Kingdom.
It goes without saying that all the European luxury carmakers — Mercedes, BMW, Porsche, Ferrari — are all eyeing developing markets, as well.
The little dustup between Musk and Journal does highlight two things.
First, it’s difficult to sort out what’s really going on with Tesla because the carmaker doesn’t act like other auto companies, reporting sales on a monthly basis.
Second, because Tesla only has one production facility, any changes to the assembly line will send ripples through the startup’s system. Customers should understand this.
You could say that there’s even a third issue: Everyone is watching Tesla’s — and Musk’s — every move. The upcoming earnings call is going to be interesting, unless Musk jumps in and provides more detail, either on the Tesla blog or Twitter, a platform he’s clearly mastered.
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