Tesla’s record first-quarter vehicle sales belie growing concerns that CEO Elon Musk’s inventory of unsold vehicles is reaching unhealthy dimensions despite the generous use of rebates to move metal.
Despite juicing sluggish demand with price cuts the world over, Musk eked out an increase of only 4.3% in deliveries over the final three months of December. The fear is the desire to claim yet another record will come at the cost of its prized margins.
“Delivery numbers for X/S are a bit troubling,” wrote Ross Gerber, longtime Tesla bull and CEO of fund manager Gerber Kawasaki. “Even with price cuts they seem to have lost the high-end customers this quarter.”
Funny thing about Tesla. Everything is great news for the company.
Not enough inventory- great news!
Too much inventory- great news!
Fully autonomous driving- great news!
Fully autonomous driving doesn’t work- great news!
Elon is focused on the company- great news!
Elon is too busy with Twitter- great news!
Tesla margins are huge- great news!
Tesla margins are shrinking- great news!
I have 100 shares in my portfolio from a company that used to be called 3DFX. I fell in love with the company. They were the first ones out of the gate to make video boards. I think the 100 shares are now worth about 16 cents. My broker offered me a free trade to get rid of it. But I keep it there as a reminder of an investment mistake I made when I was a lot younger.
Don’t fall in love with any company.
I don’t follow Tesla financials, so I have no idea how the stock will perform. But sometimes bad news is, well, bad news.
I wish everyone the best of luck with all their investments.
Let’s not be nasty with our Tesla Challenged friends!
The issue is one of perspective. Financial analysts tend not to look past the end of the quarter or maybe the year. When you worry about inventory you are projecting that quarter for the rest of the company’s lifetime. The transition from ICE to EVs will take more than a decade. What, then, should your perspective be?
Analysts have to make pronouncements, the press has to print, we have to avoid the noise.
And perhaps moving towards having dealerships after all. That’s something I’ve long thought would happen to Tesla as the EV market matured and competing sellers had their own fully available inventory. At that point, not having cars available for immediate purchase becomes a competitive impediment. Indeed, that’s one of the major roles of a dealer - to make those types of sales.
What Stevenson is describing towards the end of the video is actually a light form of dealership. Not an independent third-party dealership, of course, since Tesla operates all the delivery centers. But if these centers morph from places that are primarily where already-purchased cars are prepped and held for customer delivery, to places that have new “un-allocated” vehicles in inventory for test drives and immediate sale to customers…well, that’s pretty much a new car dealership. If it’s just a car or two, maybe we wouldn’t consider that a “real” dealership - but if Tesla starts carrying some non-trivial inventory for immediate purchase, at some point these things will be dealerships and not just delivery centers any more.
BTW, that’s not always going to be an easy shift for Tesla to make. I know the zoning history of at least one of the Tesla showrooms/delivery centers here in Miami. It’s in a zoning district that allows neighborhood retail but not auto dealerships (they’re treated as different uses under our zoning code). They were able to have the showroom there because it was not possible for a customer to purchase a vehicle on-site; they likely won’t be allowed to have inventory for immediate purchase.
You can have cars in stock when production capacity exceeds demand, not sooner. When do you think Tesla will reach that stage? Five years? Ten? Is that something worth fretting about at this point?
I think one of the analysts/commenters posted a chart showing that inventory grew each quarter for the last 3 or 4 quarters straight. But the numbers appear to be small (under 100k units cumulative I think), so I don’t think it is particularly meaningful. When they report financials, we will see what they list as “inventory” (in $).
The other issue being brought up is that sales of S/X seem to have mostly dried up. But again, I don’t worry much about low volume high-end products. If they can pull off cybertruck production smoothly, all will be well for end of 2023 into 2024.
Taking your premise, I would guess within the next two years, if not earlier. No single model of vehicle has ever sold more than about 1.5 million units (the Toyota Corolla, a few sales years). If Tesla grows production capacity as fast as they’ve been saying they will, they’ll need to well exceed that level for the Model Y next year. For both the Y and the 3 the following year. Meanwhile, competitor offerings will be growing. The era of Tesla being the only major volume player in certain BEV segments is coming to a close - and that I think will bring an end to their being able to sell as many units as they produce without doing what every other manufacturer does (advertise, have dealerships). Unless they want to reduce prices even more…but I think they’ll be at the point where they’ll be better off spending a half billion dollars on an advertising budget than to reduce prices by $1000 on a million cars.
They may indeed have already passed that point for most of their models. The Model 3 may have already peaked (Tesla sold about 25K fewer Model 3 last year than in 2021), but there’s a strong argument that demand for the S and X no longer exceeds Tesla’s production capacity. Or if you prefer, that demand for those vehicles is “only” around 65-75K per year, and Tesla has matched its production output to fit that.
Though I would reject your premise. You can choose have cars in stock before capacity exceeds demand, if that’s a more efficient way to sell them. Most physical consumer goods are primarily sold this way. Most cars are bought this way in the U.S. Because Tesla doesn’t operate this way, customers instead have to wait a fortnight for delivery after purchase. Even if you still might have a small waiting list under a ship to order" model, it might be more efficient for your customers to shift to maintaining inventory closer to the customers so that they could get their goods right after purchase.
I sell one million widgets a year. People order them directly from the factory, and then have to wait two weeks for them to be delivered.
I sell one million widgets per year. They are shipped to nearby widget stores, and people buy them off the shelf.
Each year I sell as many widgets as I produce. There might even be more demand than I can meet with supply - a short waiting list in scenario #1, products selling out occasionally from stores in scenario #2. In scenario #2, I maintain inventory - the widgets are held in stock, in stores, for some period of time in excess of transportation times.
Maintaining inventory doesn’t mean hoarding your product - it means choosing a different distribution process and a different point where consumers “match” to the product they’re buying. You can build/ship to order - consumers “match” with their product before it leaves the factory - or you can maintain inventory in stores, and consumers match in the store.
They’ll very likely sell even fewer model 3’s in 24/25 after the model 2 comes out. And they’ll sell fewer model Y’s after the model 7 (or whatever they call their next midsize SUV model) comes out. That’s how their business works (better to cannibalize your current models with your own new models than for someone else’s new models to cannibalize yours).
Of course. But once that starts happening, you’re no longer facing a situation where demand for a particular car outstrips your capacity to make that car (at that price). Which means you face the kinds of decision frontiers that we’re talking about here. Is it better to forgo the volume of the old model to the new model, or perhaps try to produce somewhat more of the old model by boosting demand through advertising and/or dealer convenience?
The answer might be to choose the former over the latter - but the company starts actually facing those choices once volumes start to hit the point of consumer saturation for that particular model.
I think it depends on what you are trying to optimize for. If you are trying to optimize for maximum profit, then, yes, it might be better to keep the old model around for as long as possible to milk it (“cash cow”). But if you are trying to optimize for maximum EV vehicles on the street (each one replacing one, or a portion of one, ICE vehicle), then perhaps you would opt to go full speed ahead on the next, less expensive and/or better, model instead.
There is no doubt that Tesla will someday become the same as any other automaker (and perhaps really like any other consumer durable maker). The current projection for that is that it will happen once EV adoption reaches the beginning of the top edge of its S-curve. But it could happen earlier. I’m not good at making such predictions. I suspect that it mostly depends on how much money other automakers are willing to lose over the next few years as they grab EV market share.
