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Tesla's Demand Is Through the Roof

By Daniel Sparks – Updated Nov 3, 2021 at 11:45AM

Key Points

  • Tesla apparently has no interest in offering special discounts for bulk orders.
  • Management sees evidence of a surge in interest for electric vehicles.
  • Tesla CEO Elon Musk reaffirmed investors this week that demand remains far in excess of supply.

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But the company needs to get through a tough supply chain environment before sales can really soar.

In a tweet this week, Tesla (TSLA 2.52%) CEO Elon Musk all but confirmed that demand for its vehicles remains through the roof. Of course, investors aren't particularly worried about how demand for the electric-car maker's vehicles is faring in a supply constrained environment. Nevertheless, it's good to know that demand remains well ahead of supply. This way, if Tesla does ramp up supply significantly in the coming quarters we can rest assured that there's likely plenty of demand for increased production volume to grow into.

A Tesla Model Y vehicle with a paddle board on top.

Model Y. Image source: Tesla.

Hertz' plan to buy 100,000 Tesla vehicles

In response to a Tesla fan on Twitter who thanked Musk for Tesla stock's staggering performance recently, the CEO took the opportunity to emphasize that Hertz' (HTZG.Q) recent announcement about its plans to order 100,000 Tesla vehicles by the end of 2022 wasn't some special contract of sorts.

"If any of [the stock's recent momentum] is based on Hertz [announcement], I'd like to emphasize that no contract has been signed yet," Musk explained. "Tesla has far more demand than production, therefore we will only sell cars to Hertz for the same margin as to consumers. Hertz deal has zero effect on our economics."

While some might interpret the point of this tweet as downplaying Hertz's recent announcement, there's a more important takeaway for investors: Musk is saying that if Hertz is ordering 100,000 Tesla vehicles, it will have to get in line. Demand for its cars is so robust that the company is not going out of its way to craft customized special deals for bulk vehicle orders.

Sure enough, Hertz responded to Musk's tweet saying that the company already has started talking orders of Tesla vehicles. Further, Hertz emphasized that it's still on target with its plan to offer 100,000 Tesla vehicles to its customers by the end of 2022. So Hertz is definitely ordering vehicles. But it's likely doing so on some sort of a planned schedule and without any special discounts.

Production constrained

Tesla confirmed in its most recent earnings call that its business remains supply constrained despite its production rate increasing rapidly recently.

"[T]he great thing that we're seeing in the space right now is there appears to just be quite a profound awakening of the desirability for electric vehicles," explained Tesla chief financial officer Zach Kirkhorn in the company's third-quarter earnings call. "... It's caught us a little bit off guard."

Kirkhorn went on to note that despite record levels of installed production capacity, production is "constrained by a number of dynamics" amid a challenging supply chain environment. To this end, shipment times of new orders of many versions of Tesla models on its website show that orders are backlogged for months. 

Of course, production constraints haven't kept Tesla from growing sales rapidly so far. Third-quarter deliveries rose 73% year over year and 20% sequentially. But Q4 will likely be the company's most supply challenged period yet.

Whatever happens in the near term, it's good to see Tesla reaffirm that the long-term demand story for its electric vehicles looks extremely attractive.

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.

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