A recent Seeking Alpha article, published before Tesla (NASDAQ:TSLA) reported earnings, presented the case that there is tremendous risk to Tesla investors going into earnings because of slowing Model S demand.
Now that earnings are out and we have guidance numbers for 2014 and the new customer deposit number, we can calculate a real backlog as opposed to the slowing demand concerns presented in bear cases for Tesla.
Here is Tesla's growth in deposits and deliveries:
This is far better than I predicted. I only expected a small change in deposits. According to people who keep track of reservations, the Model X currently has over 11,000 orders with about 13% of them being Signature Models. This gives a Model X reservation deposit total of $57 million for the Signature Model and $48 million for the regular Model X, for a total of $105 million. This leaves us with $58 million in Model S deposits. Tesla has given no indication how many of these are Signature models for countries where deliveries have not started yet or how many are regular Model Ss. However, if we make the generous assumption that it is the same 13% rate as the Model X, then we have a backlog of at least 8000 Model Ss. Since most of the Signature series models have been delivered, the Signature ratio is likely half that. Also, Chinese deposits had not started last quarter. Using these assumptions, we get a backlog of over 12000. In any case, rising deposits as deliveries rise directly implies increased demand.
In my previous pre-earnings article, I mentioned that the guidance for Model S deliveries would be for 35,000 and I hoped for 40,000. The actual guidance was for "over 35,000". Guidance for next quarter was production of 7,400 and deliveries of 6,400 due to cars being in transit to Europe. My expectation is that Tesla will beat these numbers and management did say that they could beat the delivery number if they so desired by modifying marker priorities,
Looking at Model S Ramp up compared to new "green" cars from other manufacturers gives us this:
Data Source: Wikipedia and manufacturer statements
This is impressive considering that the Model S is priced from at least double to nearly double of the other cars. Also all those cars are from established major manufacturers, while Tesla is a newcomer and the Model S is only their second car.
With its 2014 guidance, Tesla has established that there is a demand of at the minimum 35,000 Model Ss demolishing some extreme bear arguments of a maximum of 50,000 sales of the Model S and Model X combined. Even with 35,000 delivered they feel they cannot meet demand in China. On the earnings call, Tesla estimated that Europe and China combined would be twice the size of the US market by the end of the year. Also, Tesla estimated that the demand for the Model X would be much higher than the Model S, just as I had predicted.
My personal estimate for Model S worldwide demand is at least 100,000:
- 25,000 in the US - 5,000 in CA and 20,000 in the rest of the US. An average of even 1/10th of California sales in the rest of the states gives us 24,500 outside California.
- 20,000 in Europe - I expect Norway and Netherlands to account for about 10,000. 10,000 in the rest of Europe is a lowball estimate.
- 35,000 in China - about the same as the Mercedes S Class, also a low estimate considering the Model S is much cheaper and attempting to establish itself as a more trustworthy brand with their pricing strategy.
- 20,000 in the rest of the world.
If Model X can sell more than the Model S, bears are looking at Tesla all wrong. When the Gen 3 gets added to the equation, if the demand is similar in proportion to the Mercedes C class vs the S class, then we have global demand of at least 1 million for it. Here is my preview of what the overall Tesla Ramp up will look like. I will update this in a future article if the battery factory conference call provides updated information.
In conclusion, I would not bet against Tesla or Tesla stock.
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.