Tesla (NASDAQ:TSLA) is facing a serious challenge as it wraps up 2020. But the challenge isn't necessarily a bad one. Demand for its vehicles is too great.
Vehicle orders currently easily exceed production, Tesla CEO Elon Musk confirmed in a leaked email (via Electrek) to employees last Friday. Despite this high level of demand, investors shouldn't consider the company's targeted 181,000-plus deliveries for the final quarter of the year to be totally in the bag yet. To pull off these record deliveries, it comes down to Tesla employees rallying to tackle manufacturing and logistical challenges.
Demand exceeds supply
"We are fortunate to have a high-class problem of demand being quite a bit higher than production this quarter," Musk said in an email to employees late last week.
The CEO urged employees to quickly respond, helping justify customers' and investors' confidence in the company.
"To ensure that we have the best possible outcome and earn the trust of the customers and investors who have placed their faith and hard-earned money with us," Musk explained, "we need to increase production for the remainder of this quarter as much as possible."
Musk went on to tell employees to contact him directly if they identify ways to improve vehicle production output.
An old problem
Tesla's problem of demand regularly exceeding supply is an old one for the company. Indeed, even if demand came close to supply levels in a given quarter in the past, this was likely on purpose. There's no reason to pull demand levers by spending money on advertising or offering significant discounts when production can only increase so fast. Nevertheless, Tesla hasn't had to worry much about taking major actions to increase demand, as orders for its vehicles have generally tracked up and to the right.
Sure, Tesla has certainly pulled some demand levers from time to time. For instance, it regularly launches referral programs to boost sales. In addition, the company has repeatedly lowered its vehicle prices as its vehicle costs have come down over the years. But it wouldn't be fair to say that Tesla has ever had a meaningful demand problem if the company hasn't participated in any meaningful advertising campaigns -- and it hasn't.
Tesla's high-class demand problem is a testament to how satisfied its customers are. Demand has generally grown proportionate to the company's delivery volume in given regions. For every new Tesla on the road, there's another brand evangelist -- and a vehicle that will ultimately serve as many people's first electric vehicle experience.
Word-of-mouth marketing is particularly important for Tesla since many buyers need to be educated on why electric cars are feasible. Some potential Tesla customers, for instance, may not realize that the company has a Supercharging network enabling long-distance travel essentially anywhere in the U.S., Western Europe, and most places in Canada, Australia, and China.
Investors will get to see whether or not Tesla was able to hit its target for 181,000-plus vehicle deliveries for Q4 at some point during the first few days in January, when the automaker typically reports fourth-quarter deliveries. In the meantime, Tesla shareholders of the growth stock should be encouraged by Musk's optimistic report on demand for the company's vehicles.