In a leaked email to employees (via Electrek) on Wednesday, Tesla (TSLA 3.11%) revealed it still has some catch-up work to do on achieving its goal to deliver a record number of vehicles during its second quarter. The email also emphasized Tesla's ongoing cost-cutting efforts as the company aims to move closer to becoming sustainably profitable.
But the most interesting line in the email was likely one that had nothing to do with vehicle production rates, delivery logistics, or cost-cutting measures. It was CEO Elon Musk's take on orders for its vehicles.
"[D]emand is strong," Musk said in the email.
These are important words following a quarter in which deliveries fell sharply, both sequentially and compared to Tesla's guidance for a massive increase in deliveries in 2019 compared to 2018.
Image source: Tesla.
Tesla's unclear demand story
After Tesla whiffed on its first-quarter deliveries, and in light of several recent price reductions to its vehicle lineup, there has been some concern on the Street about demand for the electric-car company's vehicles.
Notably, Tesla said its worse-than-expected first-quarter deliveries were primarily due to troubles shipping vehicles overseas, as well as a pull-forward in demand in the fourth quarter as buyers anticipated the Jan. 1, 2019, reduction in the electric vehicle federal tax credit. To this end, the company did end Q1 with significantly more vehicles in transit to customers than it had at the end of Q4. Further, management maintained its full-year outlook for vehicle deliveries when it reported its first-quarter results.
Nevertheless, there hasn't been any notable evidence of growing demand. Sure, trailing-12-month vehicle deliveries are up 158% year over year. But the Model 3 launched to a backlog of hundreds of thousands of reservations, making it unclear how many orders are new and how many are from aging reservations.
Musk's take on demand for Tesla's vehicles in Wednesday's leaked email, therefore, is a good sign that demand is on track.
"While our demand is strong, we have a lot of vehicle deliveries to catch up to in order to have a successful quarter," said Musk in the email. For Tesla to achieve a new record, it will need to deliver about 91,000 vehicles or more during the second quarter. This would represent a 123% year-over-year increase in deliveries and a 44% sequential increase.
Look for a more detailed explanation
Of course, investors will want more information than what Musk said in this email to have more confidence in the company's long-term demand story. But this is promising news in the meantime, as Musk shouldn't be calling demand strong unless he thinks Tesla is on track to achieve its full-year guidance for deliveries in 2019 to rise 45% to 65% year over year.
Investors should look for more commentary on demand for Tesla's vehicles when the company releases its second-quarter vehicle delivery update. This report usually comes out within three calendar days of the quarter's end; the last day of Tesla's second quarter is June 30.
