Looking At Tesla's Most Overlooked Number: Customer Deposits

Dec. 5.13 | About: Tesla Motors (TSLA)

In my last full analysis of Tesla (NASDAQ:TSLA), I presented a picture of Tesla's potential growth under various scenarios and attempted to come up with a valuation for Tesla. At that time, Tesla traded at nearly $160 a share. Since then, Tesla has come down to the $120 level thanks to two car fires caused by road debris and one by a major accident. Tesla bears argue that this is a problem; one even went so far as to say that a recall is not only likely, it is highly probable.

In the comments of many of my articles and others at Seeking Alpha, especially after last quarter's results where Tesla delivered fewer cars in America, people question the continued growth of demand for Tesla's cars. However most people ignore one of the best predictors of customer demand - Tesla's customer deposits. Tesla reports these every quarter in their financials.

We can see the big drop in March as Tesla significantly ramped deliveries of the Model S. However since March, as deliveries continued to increase, deposits continued to increase too.

I extrapolated for next quarter basing deliveries on Tesla's guidance of about 6000 cars and deposits increasing linearly as they have for the last two quarters.

We can see easily that demand is growing because even though Tesla is delivering more cars each quarter, deposits continue to grow instead of drop.

Many Tesla bears are concerned about Tesla's ability to finance a battery factory for their Gen III vehicle. Looking at Tesla's current cash balance of nearly 800 million and the ability to raise significant amount of money from customer deposits, that doesn't seem to be as big an issue as is made out to be. Tesla announcing and taking deposits for the Gen III vehicle can alleviate a significant chunk of that problem.

If we assume demand for the Gen III vehicle is 10 times that of the Model S/X and the deposit is half that of the Model S/X, we have a fivefold increase in customer deposits just for the Gen III. Doing some simple calculations for 2 years from now:

  1. Assume $150M in deposits for the Model S/X - this is low compared to the growth predicted by the chart but I'll take this number because we don't have sufficient history to take this pattern as a rule yet.
  2. $1B in cash
  3. 5 x $150M = 750M in deposits for the Gen III

We have potentially $1.9 billion in available cash to finance a battery factory.

Monday Tesla was cleared by German authorities from manufacturer defects and I believe that the result from the NHTSA will be the same in the US. As I'm writing this, the stock is up 10% with the same expectation as a potential recall expense for Tesla is now most probably behind us.

Disclosure: I am long TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.