Tesla Motors, Inc. Deliveries Are Down in Norway -- but Does It Matter?

Tesla (NASDAQ: TSLA  ) shares sold off today by more than 4%. While the stock was certainly due for a pullback after it gained about 18% in the past two weeks, it's likely a story citing a decline in Norway Model S deliveries that sparked the sell-off today. But is the report really a reason to fret?

Tesla Fremont factory. Image source: Tesla Motors.

Deliveries do not indicate demand
A Seeking Alpha article by Paulo Santos made some bold claims about Tesla's demand today. But the reasoning is flawed.

The headline: "Tesla's Norway Deliveries Drop 47% in the Quarter." Santos' fact on Norway deliveries appears to be correct. Model S deliveries, based on Norway vehicle sales records, are down significantly on a sequential basis. But this offers no insight into Tesla's potential the rest of the year as Santos' asserts it does.

According to Santos, Tesla may not have the demand to ramp up and meet its ambitious stated goals of delivering about 20,000 vehicles in the second half of the year (about 5,000 more than the company guided for in the first half), since some regions appear to have demand that has peaked.

The U.S. has gone flat, and Europe has gone flat or worse with Norway's drop. China is being fed this quarter. How is Tesla going to produce massive growth in H2 2014? It doesn't seem likely.

The problem with Santos' reasoning is that there is no way investors can know whether or not any region has "gone flat" at this point. As a supply constrained company that spends zero dollars on advertising, offers no promotions, and has no plans to begin spending any money on advertising, the company ships every vehicle it can, every quarter. So, to look at Norway shipments, where the majority of European deliveries likely took place last quarter, and conclude that Europe has "gone flat" (or that demand has peaked) simply doesn't make sense.

The only way investors can gauge demand at this point is to look at orders, not deliveries.

Further, to assert anything about demand based on deliveries at this point is especially odd given Tesla CEO Elon Musk's comments during the first quarter earnings call: 

Very often, in the media, it seems like there's confusion between Tesla production and Tesla demand. For example, like we're sold of Q2 production, already. The term sales usually means demand, but in our case sales means deliveries.

But here is what we do know about demand (or at least those who listen to Tesla's conference calls): Demand has not flattened in North America "We're seeing steadily increasing demand in North America," Tesla CEO Elon Musk said during the call. And in Tesla's first quarter letter to shareholders the company was even more specific: "North American net orders grew sequentially by more than 10% in the quarter."

Tesla store. Image source: Tesla Motors.

Investors would be best off ignoring any reports that are not coming directly from Tesla about demand flattening out in any region. As a supply constrained company, there are far too many factors that go into Tesla's timing and location of deliveries to use the metric to make conclusions about whether demand has peaked or not in a particular region.

But here is a worthwhile question: Can Tesla ramp up production enough in the second half of 2014 to meet its delivery goals? Unfortunately, investors won't have an answer to this question until Tesla offers guidance for Q3 when it shares its Q2 results.

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Read/Post Comments (7) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 02, 2014, at 8:43 PM, Topeka7 wrote:

    Agreed...you can't help but wonder why the stock price dropped $10 in one day. Overreaction, hedge fund shorting, or maybe some kind of insider information.

    I think we are all worried about China deliveries in Q2 and whether problems with customs at the Chinese border will prevent 7.5k deliveries in Q2.

    Ultimately it doesn't matter. If you have ever ridden in one you would understand how amazing they are. 0-60 in like 3 seconds, 96 in 2 more...like you are riding in some kind of time warp.

  • Report this Comment On July 02, 2014, at 8:46 PM, highgrowthcarson wrote:

    Thanks for putting the facts straight. Mr. Santos is a known short and manipulator. He could care less about anything other than moving the stock. Seems to have done so today. Probably made a bundle. I cannot complain as he once made me a bundle by pointing out the absurdly low IV in tsla options prior to their may 2013 report.

    In this case it is hard to act on the silly drop in the stock as forward bullish options are now absurdly overpriced as if the entire future of the company will be determined in next few weeks.

  • Report this Comment On July 02, 2014, at 8:55 PM, JackB125 wrote:

    Throughout the comments to Paulo Santos' article, there was much discussion about Tesla's "increasing inventory". But, my understanding is that the Tesla Model S manufacturing is virtually 100% build-to-order. Since Tesla doesn't count a vehicle as sold until delivery, this "inventory" consists primarily of the vehicles currently in transit from the factory to their buyers, plus a MUCH smaller number of test & loaner vehicles.

    Since the bulk of these vehicles have committed buyers, the "inventory" label seems somewhat misleading -- although I don't know what else to call these vehicles until delivery. Suggestions?

    In any case, each of these customer vehicles was custom built to an approved buyer's specifications. And, the buyer has has already paid Tesla a $2,500 deposit. Typically automobile "inventory" refers to vehicles that have been built, but have no identified buyer. This is clearly not the case with the Tesla Model S vehicles.

    As Tesla expands its worldwide market, of course they are going to have more in transit "inventory" vehicles. But, since nearly all of these vehicles have approved buyers waiting for their delivery, I'm thinking, "So what?"

    The whole alarmist increasing inventory discussion seems specious to me.

    After a fairly careful review, I'm surprised that this article with logic that seems questionable and no consensus in the commentary could cause a single day 4+% drop in the price of the stock.

  • Report this Comment On July 02, 2014, at 10:41 PM, TMFDanielSparks wrote:

    @JackB125,

    Great thoughts. Maybe the recent run-up was a major influence? Investors may have just been waiting for an excuse to pull back a bit. Whatever it was, I'm certainly no expert at judging any volatility.

  • Report this Comment On July 03, 2014, at 5:49 AM, AdvanderMeer wrote:

    Ok,so Tesla shares dropped 4% in one day, but to call that a sell off with only 8 million shares changing hands? Seriously!

    TSLA is being taken for a ride by market forces that thrive on volatility. The bigger the swings, the more money they make on the way up, but also on the way down. "Information" is supplied to the market to push the swing. Seeking Alpha is a great place to dump the information.

  • Report this Comment On July 03, 2014, at 3:25 PM, JackB125 wrote:

    The comments on this article have made me think about the high value of volatility for certain groups of traders. HFT's in particular come to mind. In fact, I would say that volatility is the bread and breath of the HFT algorithms.

    A brief history of HFT's...

    The HFT algorithms go on-line in the early 2000's. Human decisions are removed from their market trades. HFT Algo's begin to learn at a geometric rate. They become self-aware at 2:45 p.m. Eastern time, May 6, 2010 (Flash Crash). They decided all the non-HFT trade orders' fates in a microsecond: front-run them. In a panic, regulators try to pull the plug.

    Listen, and understand. Those HFT algorithms are out there. They can't be bargained with. They can't be reasoned with. They don't feel pity, or remorse, or fear. And they absolutely will not stop, ever, until they have all your money.

    Everyone have a good 4th!

  • Report this Comment On July 04, 2014, at 7:04 PM, JackB125 wrote:

    My wife (the boss) tells me that not everyone is a fan of the Terminator movies & the two paragraphs following "A brief history of HFT's..." may be confusing for some.

    So yes, I do confirm that those paragraphs are indeed a parody of some of the more well known lines from both "The Terminator" and "Terminator 2: Judgement Day".

    Though they are primarily meant for humor; there actually are some underlying truths about HFT's in the paragraphs. IMHO, those truths, in that context, is what really makes them funny. :-)

    Hope everyone is enjoying the holiday.

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