Tesla will report its first quarter 2019 production and delivery figures in the next few days. The Q1 sales report is an extremely anticipated one as it will tell us whether or not Tesla managed to increase production and if the company was able to generate enough demand for the cars it has built over the last three months.
Tesla is not the kind of company that we associate with a demand shortfall, as the company has always managed to create demand that far outstripped their production. Demand for Tesla Roadster 2008, Model S, Model X, and Model 3 have always remained on the higher side since the day they were launched.
But the first quarter of 2019 has the potential to break that trend — even as Tesla pulled a multitude of demand levers in order to sell as many cars as they possibly could in the United States in December 2018, as part of its effort to help customers take advantage of the federal tax credit.
Customers who took delivery of Tesla in the first quarter of 2019 were only eligible for a tax credit of $3,750, compared to $7,500 if delivery occurred in the fourth quarter of 2018.
The tax credit, coupled with Tesla’s diverse sales strategies, would've certainly pulled customers forward, coaxing them to order earlier than they were planning to.
Tesla dropped the price of its cars multiple times since the start of the year, dropped lower-end trims of Model S and Model X, and announced the launch of a $35,000 standard battery Model 3 to help boost demand for its vehicles in the United States.
It's likely Tesla is hoping that European deliveries will help offset any softness in demand in the United States and allow the company to show a steady ramp-up of Model 3 production. But Wall Street, thus far, has not been too impressed.
According to research firm Visible Alpha, average analyst Model 3 production estimate for the first quarter is just 64,400 — slightly higher than the 61,394 Model 3s Tesla built during the fourth quarter of 2018.
That said, Bloomberg’s Model 3 tracker, which estimates Model 3 production, expects Tesla to deliver a huge surprise in the first quarter by building nearly 80,000 Model 3 units.
It must also be noted here that Bloomberg's Model 3 tracker nearly nailed its Model 3 production estimates in the last four quarters. It's conceivable that the odds of the Bloomberg tracker missing Model 3 production estimates during the first quarter of 2019 remain extremely low.
As of March 31, 2019, the Bloomberg Model 3 tracker estimates Tesla Model 3 production in the first quarter to be at 79,705, which is a full 23% higher than average analyst estimates for the quarter.
Source: Tesla Model 3 Tracker / Bloomberg
If we assume the average price of Tesla Model 3 to be $45,000, analyst estimates could miss revenue numbers by more than $650 million, depending on how many cars Tesla delivered in the quarter.
While the first quarter 2019 production stats give us some insight into Tesla’s ability to ramp, delivery figures will have a huge impact on Tesla’s quarterly revenues. Unless Tesla delivers vehicles to its customers it will not be able to book revenue.
Tesla has been delivering Model 3s to North American customers for the last 20 months, which will allow the company to book enough deliveries that should closely match demand in the region, but the same cannot be said for its European deliveries, which began in early February.
The higher the number of cars in transit to European customers, the lower Tesla’s quarterly revenue will be. Bloomberg’s high production estimate is great news for Tesla and its investors, but the real number to watch out for in its first quarter production and delivery report is the number of cars the company delivered in the quarter, and, how many ended up being in transit.
On an earnings call in January, Elon Musk told investors that he expects 2019 sales to increase by 50%. A great first quarter production and delivery report could go a long way to meet that goal.
If Tesla manages to get close to or slightly sail past its fourth-quarter figures, it could ease some of the pressure on its stock price, because it would mean Tesla has managed to successfully offset the impact of the reduction of the tax credit in the United States.
Author Bio: Shankar Narayanan is the editor of 1redDrop.com. Has an MBA from Kent State University and an engineering degree from Madurai Kamaraj University. He has been an active contributor to top financial sites like SeekingAlpha and GuruFocus, and has a penchant for talking business, finance, and technology.