Tesla (NASDAQ:TSLA) CEO Elon Musk continued to deflect concerns about demand for the company's vehicles on Tuesday, during the electric-car company's annual shareholder meeting. "I want to be clear: There is not a demand problem," Musk said.
Demand concerns from investors and some analysts have stemmed from worse-than-expected first-quarter deliveries. While management primarily blamed the quarter's underwhelming deliveries on challenges with shipping vehicles internationally, not all analysts bought the argument.
But Musk argues that demand for its vehicles (especially the Model 3) is not just healthy, but robust. Adding substance to his claims, Musk provided a few stats to drive home his point.
"Quarter-to-date, orders for Model S, X, and 3 are outpacing production," read one of the slides in Tesla's presentation. "Sales have far exceeded production," Musk added. "And production has been pretty good." Musk went on to imply that Tesla has a decent shot at a record quarter for both production and deliveries. "If not, it's going to be very close," he noted.
For some context, Tesla's previous record for production and deliveries was in the fourth quarter of last year, when the company produced 86,555 vehicles and delivered 90,966. Highlighting Tesla's staggering growth, 91,000 deliveries in Q2 would translate to 44% sequential and 123% year-over-year growth.
Importantly, Tesla's recent demand isn't dependent on the early adopters who made hundreds of thousands of reservations for the Model 3 when the vehicle was first announced. In fact, "90% of orders are coming from non-reservation holders. So, these are new customers," Musk explained.
Musk also said the Model 3 outsold all similarly priced sedans combined in the U.S. over the last four quarters and boasted greater revenue domestically than any other car over that same time frame. This means the Model 3 is generating more revenue in the U.S. than popular lower-priced cars like the Toyota Camry and the Honda Accord.
Tesla relies on word-of-mouth marketing
News of such strong demand for Model 3 in 2019 bodes well for the vehicle's long-term sales potential. While Tesla does spend money on various marketing initiatives, including test drive events, stores, and a sales force, its overall spending on customer acquisition remains low since Tesla doesn't spend any money on advertising.
The electric-car maker relies heavily on word-of-mouth marketing, which takes time to build momentum since customers with vehicles are the company's best brand evangelists. For instance, getting vehicles on the road was a key catalyst of Model S demand in 2013. "Importantly, we are seeing orders in a particular region increase proportionate to the number of deliveries, which means that customers are selling other customers on the car," the company said in its first-quarter shareholder letter in 2013.
While awareness for Tesla vehicles was undoubtedly much lower in 2013 than it is today, it stands to reason that the more Model 3s there on the road, the greater the likelihood of someone new experiencing the vehicle.
Aided by growing Model 3 deliveries, Tesla expects to deliver 45% to 65% more vehicles in 2019 than it did in 2018.