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Summary

  • Yet another piece of evidence shows that demand for the Model S is not as strong as speculated. In this case, 100 speculative cars for sale in Germany.
  • Having inventory cars for immediate delivery is incompatible with supposedly being production-constrained.
  • Tesla does have a one-off card it can play in Q1 2014, if it were to shorten delivery times, which seems to be happening.
  • But this again compromises Q2 2014, which looks to be flat at best (excluding China), not because of production but because of peaked demand.
  • Finally, there are some worrying negative signs emerging regarding Model S reliability, though this requires further confirmation.

It's not really somewhere in Europe. It's in Germany. And the myth that gets destroyed is the one that says Tesla (NASDAQ:TSLA) is so production-constrained that it can't possibly meet all the demand. If that is so, then how can one explain the 100 new Model S that are supposedly available for sale in Frankfurt, Germany?

I'm not making this up. The following is from the German TFF Forum, Forum für Tesla. You can follow the discussion as I've included a link for Google translation from German to English:

"100 Model S in stock!"

And here's the original source, with gobs of 0km Model S vehicles for the picking:

(click to enlarge)

Needless to say, a lot full of Model S vehicles is highly incompatible with the thesis that Tesla is production-constrained. Why would it be building vehicles speculatively, then, if it could sell every unit to order? These are not loaners or demo cars, these are 0km specimens.

The one-off card

Though the clues regarding peaked deliveries and demand are piling up, even in the form of low analyst projections for near-term quarters, Tesla still has a one-off card. This card rests in the way Tesla can inflate a single quarter's deliveries by shortening delivery times and delivering in Q1 cars, which would otherwise fall in Q2 if delivery time was constant.

There is some evidence of shorter delivery times in the U.S. already, as apparent from Tesla Motors' forums, but this move towards having car inventory in Europe makes it even more likely. After all, whoever buys one of those 100 cars is not going to wait months; he'll have the car in days.

It is the existence of this one-off card that makes me believe that Tesla has a shot at meeting its own deliveries guidance for Q1 2014, which stands at 6400 vehicles. However, it seems clear that such will happen by playing the card, and that has severe consequences for Q2 2014.

Q2 guidance crucial

The consequence of Tesla playing the shorter deliveries card is that Q2 2014 then has to rely on real, ongoing demand. And other than for China, such demand seems to have peaked everywhere. Thus, this brings about the likelihood that Q2 2014 deliveries will be flat to lower versus Q1 2014, except for China. Just like Baird predicted, but greatly at odds with the prevailing consensus right now, which sees at least 16% revenue growth.

What if the Model S is a lemon?

Then there is something even worse brewing. There's the chance that the Model S is behaving like a lemon in terms of reliability. This is not yet a certainty, as Consumer Reports still labels its reliability as average, and the authoritative source, JD Power, will only divulge the 2014 initial quality survey around the middle of the year.

But consider this:

  • Edmunds.com has been running a long-term test of the Model S. It is now on its third drive unit, along with several other problems. Drive unit problems, as well as battery replacements, would be severely expensive to repair outside warranty;
  • More importantly, a survey by TrueDelta is placing the Model S at the extreme of unreliability, with the worst score of any 2013 model by a wide margin. Indeed, the Model S averaged 109 repair trips per 100 cars per year, around four times the average registered by TrueDelta for other makes of car;
  • And finally, there's a thread on Tesla Motors' club forum already running 238 pages long with 2371 replies. For a niche forum, this seems dramatic.

At this point, Tesla owners are mostly satisfied. Tesla seems to have prompt customer service and it tries to make any glitches bearable by providing loaners and free service. But this won't last forever, and some of the glitches seem incredibly expensive if they arise outside warranty. Thus, this "lemon likelihood" might yet turn into another factor constraining demand, as it becomes known.

Either way, I'll be curious to see what JD Power has to say.

Conclusion

Again, more data shows up directly contradicting the "production-constrained" story. This time, the data is regarding the existence of a speculative lot of Model S cars in Germany, able to be bought on short notice.

While I expect Tesla to be able to meet its Q1 guidance if it plays the "delivery shortening" card, things are looking more and more ominous in terms of deliveries for Q2, or indeed, for the whole of 2014.

Finally, some doubts are also creeping up regarding the Model S' reliability. That's a situation that merits monitoring and waiting for JD Power's verdict.

(Thanks to the commenter "solucky" for his original discovery of the 100 Teslas in Germany - he was the first to mention them.)

Source: Somewhere In Europe, 100 Model S' Destroy A Myth