Tesla (TSLA 2.48%) shares sold off today by more than 4%. While the stock was certainly due for a pullback after it gained about 18% in the past two weeks, it's likely a story citing a decline in Norway Model S deliveries that sparked the sell-off today. But is the report really a reason to fret?
Tesla Fremont factory. Image source: Tesla Motors.
Deliveries do not indicate demand
A Seeking Alpha article by Paulo Santos made some bold claims about Tesla's demand today. But the reasoning is flawed.
The headline: "Tesla's Norway Deliveries Drop 47% in the Quarter." Santos' fact on Norway deliveries appears to be correct. Model S deliveries, based on Norway vehicle sales records, are down significantly on a sequential basis. But this offers no insight into Tesla's potential the rest of the year as Santos' asserts it does.
According to Santos, Tesla may not have the demand to ramp up and meet its ambitious stated goals of delivering about 20,000 vehicles in the second half of the year (about 5,000 more than the company guided for in the first half), since some regions appear to have demand that has peaked.
The U.S. has gone flat, and Europe has gone flat or worse with Norway's drop. China is being fed this quarter. How is Tesla going to produce massive growth in H2 2014? It doesn't seem likely.
The problem with Santos' reasoning is that there is no way investors can know whether or not any region has "gone flat" at this point. As a supply constrained company that spends zero dollars on advertising, offers no promotions, and has no plans to begin spending any money on advertising, the company ships every vehicle it can, every quarter. So, to look at Norway shipments, where the majority of European deliveries likely took place last quarter, and conclude that Europe has "gone flat" (or that demand has peaked) simply doesn't make sense.
The only way investors can gauge demand at this point is to look at orders, not deliveries.
Further, to assert anything about demand based on deliveries at this point is especially odd given Tesla CEO Elon Musk's comments during the first quarter earnings call:
Very often, in the media, it seems like there's confusion between Tesla production and Tesla demand. For example, like we're sold of Q2 production, already. The term sales usually means demand, but in our case sales means deliveries.
But here is what we do know about demand (or at least those who listen to Tesla's conference calls): Demand has not flattened in North America "We're seeing steadily increasing demand in North America," Tesla CEO Elon Musk said during the call. And in Tesla's first quarter letter to shareholders the company was even more specific: "North American net orders grew sequentially by more than 10% in the quarter."
Tesla store. Image source: Tesla Motors.
Investors would be best off ignoring any reports that are not coming directly from Tesla about demand flattening out in any region. As a supply constrained company, there are far too many factors that go into Tesla's timing and location of deliveries to use the metric to make conclusions about whether demand has peaked or not in a particular region.
But here is a worthwhile question: Can Tesla ramp up production enough in the second half of 2014 to meet its delivery goals? Unfortunately, investors won't have an answer to this question until Tesla offers guidance for Q3 when it shares its Q2 results.
