Please ensure Javascript is enabled for purposes of website accessibility

Tesla Is Seeing Strong Demand for Its Vehicles

By Daniel Sparks – Aug 4, 2020 at 6:31AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Even amid a pandemic, order trends for Tesla vehicles are exceeding supply.

One big question going into Tesla's (TSLA -0.19%) second-quarter earnings report was how demand for the electric-car maker's vehicles is faring. Many investors were likely wondering whether or not the pandemic and a spike in unemployment had taken a toll on the company's order volume.

As it turns out, Tesla isn't the least bit concerned about demand for its vehicles. In fact, Tesla CEO Elon Musk says the company is seeing strong order volume throughout the pandemic. In addition, management provided guidance for sharp growth in total 2020 vehicle deliveries compared to 2019.

Tesla's Model S, X, 3, and Y

Image source: Tesla.

Robust demand

When asked during Tesla's second-quarter earnings call about the near-term demand environment for its vehicles during the pandemic, Musk said, "Demand is not a problem, definitely not."

The CEO reiterated this stance again in an interview on the Daily Drive Automotive News podcast last week, saying that the company "saw strong orders through the whole pandemic." He implied that the company's online presence that makes online orders easy was likely an advantage for Tesla. 

Fortunately, investors don't have to rely solely on management's report on demand to know that things are going well. The automotive company also shocked investors with second-quarter deliveries that were far higher than analysts were expecting. Total deliveries during the period were down just 5% year over year, despite Tesla's main factory in California being shut down for nearly half of the quarter.

Big expectations

Offering more support for management's optimistic view for demand, the automaker put an aggressive target on its deliveries for the full year. In its second-quarter shareholder letter, management said it is targeting half a million deliveries in 2020. Highlighting how rosy this outlook is, this target implies 36% year-over-year growth.

Even more, Musk indicated during Tesla's second-quarter shareholder letter that the limiting factor on not having a greater target than 500,000 vehicles in 2020 has more to do with supply than demand.

"It's really just a production issue. It's been pretty hard when you've got like a global supply chain, and it's kind of whatever the most effective part of supply chain is that sets your rate," Musk said. In fact, "demand exceeds supply right now," he added.

Tesla's positive demand story is good news for investors, as the company relies heavily on word-of-mouth marketing for its sales growth. If demand were to ever show signs of weakness, the company may have to begin spending money on advertising, reducing its profitability. Further, the stock's current valuation already prices in significant growth in deliveries for years to come. Growth in order volume over time, therefore, is essential to any bull thesis for Tesla stock.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tesla Stock Quote
Tesla
TSLA
$182.86 (-0.19%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.