Is popularity of Tesla starting to cool down?
Despite record deliveries, questions raised over demand
The popularity of Tesla’s electric cars has reached a point where, on some days, it seems as if every other car on Bay Area roads is a Tesla Model S, Model X and, especially, a Model 3 sedan.
Despite the apparently endless number of Tesla cars around the region, could looks be deceiving regarding the overall growth in demand for Teslas?
On Wednesday, Tesla said it delivered 97,000 vehicles during the third quarter. It was a record number of deliveries for a single quarter for Tesla and represented an increase of more than 16% from the 83,500 cars Tesla delivered in the third quarter a year ago.
However, Tesla’s deliveries fell shy of the 99,000 expected by many Wall Street analysts, and the figure also missed the milestone of 100,000 deliveries that Chief Executive Elon Musk recently said Tesla had “a shot” at hitting. The company’s third-quarter deliveries also were less than 2% more than the 95,200 cars Tesla delivered in the second quarter of this year.
Those results were enough to turn investors against Tesla on Thursday, sending the company’s shares down more than 4% to close at $233.03, and leading to questions about the possibility of Tesla beginning to see some waning of desire among consumers for its cars.
That was the view of Oppenheimer analyst Joseph Osha, who said that Tesla’s delivery announcement left him, for the first time, “wondering whether demand growth for Tesla’s cars might be leveling off.”
Because of Tesla’s report, Osha cut his rating on Tesla’s stock to market perform, or the equivalent of neutral, from market outperform, or buy. Osha said he was not ready to “buy in to some of the more dire observations” that have been levied about Tesla’s finances and prospects, but the company’s deliveries do raise concerns about market demand for its vehicles.
“We know of no operational issues that could have prevented Tesla from delivering more vehicles if demand were available,” Osha said. “The third-month surge (in a quarter) that Tesla tends to see in its deliveries does not appear to have been as strong as normal.”
Tesla said that during the quarter, it delivered 79,600 Model 3 cars and a combined 17,400 of its Model X and Model S vehicles. Those deliveries gave Tesla a total of 255,370 vehicle deliveries this year; the company has set a goal of delivering between 360,000 and 400,000 cars in all of 2019.
That forecast might now be a reach for Tesla.
Gene Munster, managing director of research firm Loup Ventures, said that delivering more than 100,000 cars in the final three months of the year would represent “a major milestone” for Tesla and that “hitting even the low end of its 2019 guidance would be a big win for a company that struggles to properly set expectations.”
Munster said he felt the “organic demand” for Tesla’s cars remains strong, as evidenced by how the company’s deliveries increased by 16% from the year-ago period and how Tesla also built 96,155 cars in the quarter, which also was a record for the company.
Maynard Um of Macquarie Research largely dismissed concerns about demand for Tesla cars to begin dramatically dropping off by calling its missing Wall Street’s delivery targets as “immaterial.” Um said that among the reasons Tesla’s deliveries may have been less than expected were a continuing reduction in the federal tax credit being given to electric car buyers.
That credit had been as much as $7,500 but is going down to $1,875 due to the number of Tesla’s overall vehicle sales and will be phased out entirely in early 2020.
“Demand has, in our view, been buoyant, which we believe is being helped by increasing word of mouth and awareness in the U. S., (cars with) righthand drive in Europe, and less of a drop- off in China than feared,” Um said.