Sometimes a number can be said to sound impressive, but on closer inspection, it can actually be spectacularly unremarkable. Take Elon Musk's tweet of July 19 in response to Needham's downgrading from Tesla (NASDAQ: TSLA) Inventory: here.
"Do not know where this bs comes from, who knows about the future, but last week we had over 2,000 S / X and 5,000 Model 3 * new * net orders."
Let's dissect what that means. In Tesla's terminology, an "order" means when a deposit is converted into a configuration. It is when the deposit goes "hard". For the Model 3, after the buyer had added $ 2,500 to the deposits of $ 1,000, this was the color and other options submitted.
In Tesla's case, it said in its July 2 news release It sits on 420,000 deposits of the Model 3. Does Elon Musk's tweet mean that over the past week, 5,000 depositors have been converted to orders? Unless Tesla's terminology has changed, that seems to mean it.
Tesla opens up the possibility that any model can configure 3 depositors in the US and Canada inconspicuously. Assuming 150,000 (out of a total of 420,000), this is a conversion yield of only 3.3%. Getting 5,000 orders per Elon's tweet sounded impressive, but it actually seems like a disaster.
No Need to Stand in Line: Get Your Model 3 Anyway in a Month.
Too often lost in the numerous multidimensional debates Tesla Model 3 is underpinning the claimed 420,000 (per Tesla July 2 press release) deposits, and where it could go from here. Much of the analysis focused on the production side of the equation for a reason, but now is the time to come back to demand, at least for a moment. Thousands of cars that stir up dust in the desert make this question more urgent than ever: here
After all, this stock market story is far more than just demand. When that bubble bursts, it's a huge investment history problem – even before we look at profitability, debt and working capital (balance sheet), and restrictions on the cash flow statement.
The reason is now The time to discuss the demand for the Model 3 is that there are some amazing things that, following Tesla's opening of the Model 3 for all in the US and Canada in steps between the 27th and 30th June and early July. Basically, in the last few weeks.
In his recent article – here – Montana Skeptic has pointed to a thread with a selection of people who have configured their cars and got them in less than a week: here. The phenomenon is staggering, people are ordering the car and getting the car almost unbelievably fast: here.
I wrote "incredibly" fast, just because it was so hard to believe. Is not it true that if you're making a down payment for a Model 3, you'll have to wait at least five months to get your car, and maybe closer to a year or even 18 months?
This takes a while it really hit in the last week, when I heard from several friends that yes, it was true. They set a bail for a Model 3, configured and then it was said that the car would be ready in just a few weeks. This is now confirmed by Tesla's own website. Just go and configure a Model 3 and it spits (at least for me) "Delivery in 1-3 months."
That was also said to my friends, and then in some cases they get the Model 3 in "less than a month."
With God, that means the backlog is pretty much gone, no?
Well, There are two important factors to consider:
You can not order the $ 36,000 (including $ 1,000) version yet.
You can not order a model outside the US and Canada 3).
This does not mean that Tesla is suddenly a few weeks behind, so we really need to understand which part of the 420,000 falls into the two buckets listed above ($ 36,000 version and outside of North America).
The problem is that there is no fair way to accept these numbers for an outside observer, and when it comes to the $ 36,000 version, Tesla does not know herself when you deposit your Model 3 deposit between March 2016 and June 2018 Tesla did not ask which version you were interested in. Perhaps some were only interested in the $ 36,000 version (with $ 7,500 federal grant), while others were willing to pay $ 50,000 to more than $ 70,000. Tesla finds out right now, just like the rest of us.
For the people in the US who are now being asked to configure, some will hesitate and wait for the opportunity to configure the $ 36,000 version in the December quarter. Some have not decided yet. Others may have given up the idea, but for whatever reason did not ask for their $ 1000 bail. Maybe some people forgot the whole thing, the deposit and everything. We can discuss this composition of the deposit back until the cows come home, but there is no objective or even convincing answer here – and still.
When it comes to the non-American / Canadian mix, the situation is a bit different but not much help for us non-Tesla management people. Tesla knows this mix, of course, but he did not give the number – or at least lately. Maybe they gave a vague hint at some point, but if it was years ago. Really, they should report this mix with the precision of the company. It is an important index for investors, which is very important for the valuation of the company.
For example, how many reservations come from so-called addresses in China? In Nigeria? In Russia? And so on.
This is important because investors deserve to get an idea of the "quality" of these reservations. If 50,000 reservations are all from an address in Shanghai or Beijing, then investors should know that.
If 75,000 reservations come from Nigeria, it would be equally interesting. And from Russia. And so on.
Speaking of fins, why are there so many in the US? Here is a page dedicated to the sale of used Tesla :
Why are there so many Model 3 units on the market, and why are they selling at such low prices? It seems that the only obvious explanation is that there were many pinball machines, and the model 3 thesis has already gotten pissed off. Why buy a model 3 from a pinball machine when you buy it directly from the factory and get the car almost as fast?
Of course, even after scrubbing Model 3's deposit list of people who are a bit of obvious pinball and speculators, we have the same question: how serious are the remaining depositors? And it's not like it's black and white, but just like in the US and Canada, it's probably a gray scale that reflects the diversity of society as a whole: people have different circumstances and motivations to be interested in buying a model 3 , 19659023] Let's say that a fair check on the Model 3 Depository List would eliminate 120,000 as "obvious" pinball and scamsters that would not consider buying the car unless it was basically a risk-free transaction Also known as arbitrage. That would leave us 300,000 net worldwide.
Then suppose half of it is in the US and Canada, and the rest is elsewhere. We then talk about 150,000 in North America and 150,000 overseas.
When we arrived in mid-2018, people could order the Model 3 and get the delivery in less than a month – basically as fast as anything gets from any automaker, unless you pick something on a dealer lot – Tesla had delivered this number of model 3 cars:
model 3 sales
220  4Q 2017
As you can see in the above table, there were only 28,390 units sold at the time Tesla was able to deliver Model 3 cars in just about a month , The big picture here is that the North American $ 50,000 plus Model 3 backlog has essentially disappeared, with only a fraction of what could possibly be 150,000 "real" serious deposits in the US
Of course, the balance must be those who are waiting to order a Model 3, which will cost the original price of $ 36,000 ($ 35,000 plus $ 1,000 compulsory delivery fee). But Musk said they can not sell such a car without losing money, so why should you have such a backlog?
Some bears have been saying all along that we will never see this $ 36,000 model 3 never agree. I think we'll see that the 36,000 dollar version will be delivered by the thousands – and we may even see it a hair earlier than the current year-end 2018 expectation. I think it could come in October or even the end of September.
Why? Tesla just can not afford to break that promise. The headline would be devastating. However, what Tesla can do is just not sell a lot of those $ 36,000 losing cars, at least as long as it takes. Deliver a few cars, keep the attention and interest of the public, and then … we'll cross the bridge when we get there.
European Model 3 deliveries can now take place earlier
What is the other thing Tesla wants? Are you now realizing that the US model 3 sales from the backwater stack are basically exhausted?
The answer seems obvious: Accelerate Model 3 exports to overseas markets! China has just been effectively blocked for US car exports due to the trade war and its punitive tariffs, but Europe remains open. So send the Model 3 units a few months earlier than we were told and as little as last month.
I would not be surprised if Tesla in Europe started selling the Model 3 in just two years – three months from the end of the year. I do not see how Tesla has no other choice, as the demand backlog in the US was not fulfilled until shortly after mid-2018.
These are probably two initiatives that are beginning to sell the $ 36,000 earlier and sell earlier overseas are expected to be part of the second quarter report of August 1. I mean, why not use these potentially positive initiatives to distract you from the horror shows that would be the income statement, balance sheet, and cash flow statement?
The Impact on Model Y Deposits: Very Bad
What will not be mentioned in the call for the second quarter, or at any other time, what the Model 3 deposit fiasco is based on will have the deposits of Model Y. Remember, Musk said that the tentative date for Model Y's unveiling will be March 15, 2019, with production a year later – the first half of 2020.
Apart from that, there is no factory for that Model Y, and That a factory takes a few years to plan and build – let alone finance -, the prospects for the Y model deposits are not nearly as good as they were a month ago. We now know the following about the Model 3:
The production of the Model 3 was delayed. When Elon said the car was in production on July 28, 2017, the assembly line was still months from being fully installed.
The $ 36,000 release, due to be shipped in Q4 2017, was particularly late. It will be a year too late, and when it does arrive, the amount will be tiny. Why should Tesla finally deliver a car that they say is losing money?
What is the incentive to deposit a Tesla deposit for a year in advance? Apart from the very first tiny percentage of the total (below 30,000 of the 455,000 peak number a year ago), he clearly did not buy the owner of the Model 3. This is probably the most important point of all.
If the Model Y is revealed – let alone delivered in some measurable quantities in a few years – there will be so much competition that it will be too late for the party. This was unlike the S and X models, which were unique – and largely in contrast to the Model 3, which in the first year only cared about the Chevrolet (NYSE: GM) Bolt EV.
For these reasons, I do not think so. I think people will be just as motivated to make a deposit for the Model Y as for the Model 3. And that's a big problem for a Momentum stock like TSLA: Negative Dynamics.
Disclosure: I am / We are short TSLA.
I wrote this article myself and it expresses my own opinions. I do not receive any compensation for it (except from Alpha search). I have no business relationship with a company whose shares are mentioned in this article.
Additional Disclosure: At the time of submission of this article for publication, the author was briefly TSLA. Positions may change at any time. The author regularly attends press conferences, vehicle launches, and the like, hosted by most major automakers.