When it comes to Tesla (NASDAQ: TSLA) there are a number of things that should concern investors. For example, CEO Elon Musk has plenty of promise of profits in the second half of this year: The automaker will have to more than double its current weekly Model 3 production rate in just three months.
Then there is the fact that Tesla's last quarter, the automaker recorded its worst quarterly loss every year. The achievement of profits this year therefore requires an extraordinary execution on the part of Tesla. Finally, Tesla's wild valuation, including its 4.2.2 price-to-revenue ratio, means that the company must deliver tremendous growth in the coming years.
But there are also things that appear to be good reasons to be skeptical on the surface, but after a closer look are not that worrisome. One facet of Tesla's Business Investors should not care about the demand for Model 3, despite initial production delays that may have led some Model 3 owners to cancel their reservations.
Here are seven reasons why investors should not worry about the demand for Model 3.
. 1 Tesla Has Hundreds of Thousands of Deposited Reservations
The first reason why Tesla's Model 3 demand is not a problem is obvious, but still worth considering: From Tesla's last update on Model 3 reservations, the company praised about 455,000 of them – all backed by cash deposits of about $ 1,000, depending on the market in which the Model 3 was reserved.
Although this figure was reported last summer, Tesla has not even stated that net cargoes for the key vehicle have dropped. In fact, Tesla said in the third quarter of its shareholder letter last year that global net advances for Model 3 continued to rise significantly during the reporting period.
In the fourth quarter update of Tesla in the fourth quarter, management noted that the reservations remained stable. During the quarter under review, growth resumed in the weeks leading up to the release of the Letter to Shareholders in the fourth quarter after the Model 3 in selected Tesla Branches was presented. In the first quarter's Tesla update on deliveries and production, management said net model-3 reservations remained stable during the reporting period, despite "delays in the availability of certain planned options, notably dual-engine four-wheel drive and a smaller battery pack."
Maintenance Reservations at this level, even though the automaker lagged behind its original schedule for model 3 deliveries about six to nine months ago, is quite a feat.
. 2 Tesla does not pull any significant levers to generate demand
Not only is the model 3 not to be seen in most Tesla stores, but the page from Tesla's website about the Model 3 even drops Model S and essentially sells the model 3 Those who want to make a new reservation today can not even access the online configurator, which allows customers to choose options and accurately assess their vehicles. This privilege is limited to early booking.
And good luck planning a test drive. At the time of writing, anyone attempting to schedule a Series 3 test on Tesla's website will only receive two vehicle options: Model S and X.
3. Word of mouth has had no chance
In In the past, word of mouth has proven to be the best lever for vehicle demand. In fact, Tesla has managed to avoid paid advertising all the time and instead focus marketing efforts on referral incentives. But with Tesla only delivering an estimated 15,000 Model 3 vehicles – a fraction of the hundreds of thousands of car reservations – word of mouth had no chance of significantly influencing demand.
Tesla explained how word-of-mouth was to his advantage shortly after the launch of Model S. "What's important is that orders in a particular region will increase in proportion to the number of deliveries," Tesla said in a letter to shareholders in 2013, "meaning that customers sell other customers by car."
Similar The Model 3 is likely to benefit from word of mouth, but possibly even more so, as its lower price point gives it a much larger addressable market than the Model S.
4. The availability of International Model 3 has not yet started
Immediately following Tesla's statement in the Letter to Shareholders from the first quarter of 2013 on the effects of word-of-mouth propaganda, management went to What this could mean for foreign demand Model S: "Since we have not delivered any customer cars outside of North America, there seems to be significant upside potential in Europe and Asia."
Virtually all Tesla Model 3 deliveries have been in the US so far. US international Model 3 deliveries to left-hand drive markets will not commence until mid-2018, the company said. In addition, Tesla does not plan to deliver the vehicle to right-hand drive markets by the beginning of 2019.
International availability will be another lever for the demand for Model 3.
5. Demand for Model S and X Was Never a Problem
Few believed that Tesla's "Letter to Shareholders from the second quarter of 2012 (about a month after the automaker delivered its Model 3)" accelerating propulsion "We predicted that demand for 2013 shipments will exceed 20,000 Model S units. "But Tesla's 2013 Model S deliveries surpassed 22,000 units, and Tesla now delivers more than 50,000 Model S vehicles annually.
Even though the production of Model 3 is increasing, the requirements of Model S and X remain "very strong," Tesla said in its April 3 update on vehicle delivery and production – in fact, net orders for Model S and X were at an all-time high in the first quarter, management said.
6th Prize Counts
Although the Model 3 should eventually start at $ 35,000 l, it is not yet. Currently, the only version of Model 3 that customers can order is the $ 49,000 long-haul version of the vehicle. The standard model 3 battery with a range of 220 miles and standard equipment will not be available until the end of 2018, Tesla's website says.
Without an orderable Model 3 of $ 35,000, some potential customers may wait until Tesla launches the delivery of the cheaper vehicle before spending $ 1,000 on a reservation. After all, the standard battery model comes about 29% cheaper than the long-haul version.
7. Competition could prove to be a catalyst
All-electric vehicles are still a niche market, accounting for only a fraction of worldwide car sales. Given the rapidly increasing demand for all-electric vehicles and their low share in the automotive market, any new competitor launching a purely electric long-distance vehicle could play a key role in informing consumers about the viability of this alternative to internal combustion engines and hybrids.
To this end, increasing competition in space has not adversely affected Tesla. Although General Motors (NYSE: GM) announced its comparable all-electric Chevrolet Bolt ahead of Model 3 – and started shipping it before the Model 3 – Tesla managed to accumulate hundreds of thousands of Model 3 reservations. In addition, Tesla's Model 3 deliveries are now ramping up over bolt deliveries, especially now that the automaker has been producing weekly production rates in excess of 2,000 units a week for three weeks.
Without real evidence suggesting competition, Tesla's market potential will be eroded. There is still reason to believe that this could be a market where a rising tide lifts all boats.
Investors have good reason to be skeptical of Tesla's ability to live up to its wild rating. But the demand for Model 3 is not one of them.