With his street low TSLA price target of $93/share, Vertical Group's Gordon Johnson has rightfully earned himself the nickname of most bearish Tesla analyst on Wall Street, and according to some, Johnson was instrumental in facilitating today's bizarre $30 intraday swing in TSLA's stock price from a 6% spike at the open on the "surprise" news the company had "hit" its 5000 Model 3 quota, to a confounding 3% drop shortly after noon.
1. Using FactSet numbers, Consensus was calling for 2Q18 TSLA Model 3 sales of 27.980K units, and total sales of 51.120K units; TSLA reported Model 3 sales of 18.440 units (a 34% shortfall) and total sales of 40.740 units (a 20% shortfall); stated differently, this represents Model 3 demand of just 1.418K cars/week in 2Q18; consequently, as we’ve stressed, as TSLA runs through its backlog of Model 3 reservations, we believe the company will become demand constrained rather than supply constrained (we expect this to occur at some point in 4Q18/1Q19 – see attached spreadsheet); stated differently, despite all the focus on Model 3 cars produced/week by the media today, we stress to our readers that just because TSLA makes a Model 3 car – with competition coming and buyers tired of “waiting” – does not mean demand for that car exists.
2. TSLA mentioned that it reached 5,031 Model 3 cars of “factory gated” production in the last week of June; while the company said it has used the “factory gated” terminology all along, we were not able to find this term in any SEC filings or public transcripts; however, looking to Linkedin, it seems “factory gated” may mean cars that require further testing and quality inspection upon leaving the factory floor (Exhibit 1) – this would mean these cars are likely not “full production vehicles” in the traditional sense of auto industry terminology;
3. Excluding the 5,031 cars TSLA produced in the last week of June (i.e., before its “boost week" – link), the weekly output rate of Model 3 cars over the first 84 days of 2Q18, based on TSLA’s reported numbers , was 1,962/week – i.e., (28,578 - 5,031 = 23,547; 23,547 ÷ 84 = 280.32; 280.32 × 7 = 1,962 Model 3 cars/week of production); surprisingly, 1,962 Model 3 cars produced/week in the first 84 days of 2Q18 is ACTUALLY below the 2,000 Model 3/week production rate TSLA highlighted in its 1Q18 production report published 4/3/18 for the first week of 2Q18 (yes, you heard that right) –; furthermore, in yet another massive miss to intra-quarter guidance provided by Elon Musk via Twitter (for which it seems there is no penalty for being wrong), the avg. rate of 1,962 Model 3 cars produced/week leading up to the last week of June 2018 is also materially below the 3,000-to-4,000 Model 3 cars/week of production Elon Musk noted TSLA would achieve in May following a brief shutdown in April;
4. TSLA’s net reservations were listed at 420K cars as of today (7/2/18), while they were listed at 455K Aug/17, and “above 450K” May/18; additionally, to date, TSLA has delivered 28.386K Model 3 cars; thus, as we warned last week, and as TSLA management told us, new orders have essentially been 0 for ~1 year now (i.e., no new reservations) – due, according to TSLA, to long lead-times to get the car; as such, when considering net reservations have been flat at ~455K cars since 8/2/17, as well as TSLA’s comment to us last week that new orders for Model 3 cars have been nonexistent for roughly a year, we believe today’s data confirms lackluster new reservation demand for Model 3 cars for some time now;
5. When subtracting total Model 3 cars delivered (i.e., 28.386K) from total Model 3 cars produced (i.e., 41.029K) one arrives at 12.643K Model 3 cars “in transit”; be that as it may, when comparing this number to TSLA’s reported Model 3 cars in transit as of 2Q18 of 11.166K, it seems there are ~1,477 excess Model 3 cars unaccounted for (Exhibit 2); while Elon Musk has said the numbers can be off by 0.5%, this is a 13% gap; while we cannot say with certainty what these “unaccounted” cars represent, it seems to reason that they are comprised of production cars requiring re-works sent to delivery centers (which could also suggest Model 3 cars produced/week may be a bit overstated); and
6. Based on our analysis, there were roughly 175 less Model S/X vehicles in transit at the end of 2Q18 vs. 1Q18, but >9K more Model 3s were in transit, meaning just under $500mn in extra finished goods inventory (i.e., cash burn) – assuming a Model 3 ASP of ~$55K/car and Model S/X ASP of ~$105K/car; while this will be partially offset by TSLA’s offer to configure to all of its Model 3 ~420K net reservation holders last week – at $2.5K in additional configuration costs, assuming every one configured (which is highly unlikely, as we believe the bulk of Model 3 reservation holders are buyers seeking the $35K/car option), this would be $1.05bn in additional cash inflows – we still expect TSLA to display another sizeable cash burn in 2Q18 (when factoring in EBIT losses ~$600mn/qtr, as well as ~$150mn in interest expense and $450mn in depreciation).