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Will Tesla's revenue growth stall in Q3-2019?
Posted on October 23, 2019 by Shankar Narayanan
Tesla’s like a drama magnet, CEO Elon Musk told investors when the company hosted its annual shareholder's meeting in 2017.
Photo: Casey Murphy, EVANNEX
Every move made by Tesla gets analyzed with a magnifying glass. As a result, the company has had to contend with unflattering headlines — missing its own production estimates, going back on its profitability expectations and other tales of woe. However, through all the trials and tribulations, Tesla admirably held on to its growth story, increasing revenue quarter after quarter without fail.
That said, Wall Street is forecasting Tesla’s growth momentum to stall in Q3-2019, for the first time since the third quarter of 2012. “The average of 22 analysts’ estimates compiled by Bloomberg is for $6.4 billion revenue for the third quarter, compared with $6.8 billion a year earlier.”
Analysts are forecasting a revenue decline of $400 million in Q3-19 compared to last year despite deliveries increasing by 13,500 units. Wall Street’s pessimism is due to Tesla’s changing sales mix.
Tesla delivered 97,000 units in the third quarter, an increase of 16% compared to last year, while production increased by 19%. As Tesla ramped up production, volume moved in favor of the less expensive Model 3, while Model S and Model X, Tesla’s luxury vehicles that retail for nearly twice the price of Model 3, struggled to hold their delivery numbers.
In Q3-2019, Tesla delivered 79,600 Model 3 and 17,400 Model S and X, compared to 55,840 Model 3s and 27,660 Model S and X Tesla delivered last year (Q3-18).
The multi-million dollar question for Q3-19 is: Will the additional 23,760 Model 3s that Tesla sold be enough to offset the sales decline of 10,260 Model S and X vehicles?
It’s going to be a close call and Wall Street is expecting the shift in sales mix to hurt top-line growth.
Though I am not in favor of Tesla’s current strategy to prioritize production/delivery of Model 3 over Model S and X, the negative impact of Model 3's growing revenues on Tesla’s top-line growth will be an extremely short-lived one.
Tesla has steadily increased production of Model 3 over the last two years and it will receive a further boost when Tesla’s Gigafactory 3 in China starts shipping vehicles.
“The U.S. electric vehicle maker aims to produce at least 1,000 Model 3s a week from the new factory by the end of this year, the centerpiece of its ambitions to boost sales in the world’s biggest auto market and avoid higher import tariffs imposed on U.S. cars. The plant’s mass production schedule is crucial for Tesla’s hopes of reaching its total production rate at an annualized 500,000 vehicles by the end of this year.” - Reuters
Tesla manufactured 79,837 Model 3s this quarter, an average of just over 6,000 units per week. Tesla wants to increase weekly production to 10,000 units. Increasing Model 3 revenue will continuously alleviate the impact of Model S and X revenue dips on the top line.
Revenue growth may stall in Q3-19 or Tesla may find a way to edge past last year’s net sales, but as long as Tesla keeps increasing production, the electric car maker will continue to own the “Growth Company” tag.
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.