Tesla Motors' Q2 Delivery Guidance Hinges On China

| About: Tesla Motors (TSLA)

By Michelle Jones

Tesla wastes no time in ramping up Model S deliveries in China, but will other problems there dampen investor sentiment?

Tesla Motors Inc. (NASDAQ:TSLA) management has emphasized the importance of China, and the automaker has certainly making strides to please customers there. Tesla made its first Model S deliveries to the country in April, and Barclays analysts say China likely played a key role in the automaker's second quarter deliveries.

China deliveries make up for Europe deliveries

In a report dated July 7, 2014, Barclays analyst Brian Johnson said Tesla Motors is placing great importance on China in hitting its guidance of 7,500 deliveries for the second quarter. He said early indicators suggest a "solid debut in China" but soft delivery numbers in Europe.

The analyst is estimating between 2,400 and 2,500 deliveries in Europe, compared to 3,071 units delivered there during the first quarter. In June, he said Tesla probably delivered between 150 and 175 units in the U.K., suggesting a "nice start" there. However, he believes deliveries in Norway are beginning to plateau and that deliveries in Germany, the Netherlands and other European markets weren't enough to offset Norway.

Media outlets in China are estimating that Tesla delivered between 1,000 and 1,300 units there during the second quarter, which would be a little ahead of Johnson's estimate of 1,000 units (all charts and graphs courtesy Barclays).

If the automaker delivered around 1,100 Model S sedans in North America in April, deliveries in the region for May and June would have to be around 2,600 to 3,000 units to meet guidance, based on estimates for the other regions. This would suggest monthly average deliveries of about 1,400 for May and June, which would be about a 27% increase from April.

Johnson has an Equal Weight / Neutral rating and a $220 per share price target on Tesla Motors.

Tesla faces problems in China

Given the importance of China, any news regarding Tesla Motors and China could have some impact on the stock. MarketWatch reports today that Beijing has laid out a plan for electric car charging stations but left Tesla out in the cold. China plans to build 10,000 rapid charging stations in Beijing by 2017.

Currently Tesla's Supercharger technology isn't compatible with electric cars made by other manufacturers. The automaker could face problems with its future in China because the government will not support charging stations that don't follow the standard that's emerging in the country. However, Tesla Motors already has plans to roll out its own Supercharger network in China, so the impact from the Chinese government's lack of support could be minimized. In fact, the automaker built a Supercharger station in Shanghai within just weeks of selecting a site, thanks to support from city government there.

Tesla sued in China

Another issue facing Tesla in China is a trademark infringement lawsuit filed by Zhan Baosheng, who registered the Tesla trademark there before the automaker entered the country. He wants Tesla to close all of its showrooms, Superchargers and service centers in China, as well as stop selling and marketing cars there. He also wants a payment of $3.9 million as compensation for the alleged infringement.

Bloomberg Businessweek reports that a Tesla spokesperson accuses Zhan of trying to steal their property. The automaker already filed complaints against Zhan to authorities in China and won those complaints. The spokesperson said they haven't seen or been served the lawsuit. Chinese regulators sided with Tesla, ruling that Zhan's trademark was invalid because he hasn't used it yet. Of course Tesla isn't the only one facing trouble over its trademark in China. Apple Inc. (NASDAQ:AAPL) was also sued for infringement, and that case doesn't appear to have affected its sales there.

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Disclosure: None.