Tesla, Jaguar And Math: You Will Be Surprised

| About: Tesla, Inc. (TSLA)
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Summary

The Jaguar brand (not including Land Rover, Range Rover) was 66% larger than Tesla in 2015, and 102% larger in 1Q 2016.

However, Tesla remains larger than Jaguar in the U.S. thanks to its heavy - and increasing - concentration of sales in this market.

The April and May 2016 results point to Jaguar narrowing the gap with Tesla in the U.S. market.

Jaguar's U.S. and global growth rates are very close to Tesla's.

Given the similar growth profile, why isn't Jaguar worth $50 billion, and the U.S. part alone at least $10 billion to $15 billion?

This article is about comparing sales trends between Jaguar and Tesla (NASDAQ:TSLA). Jaguar is part of Jaguar Land Rover, in turn owned by Tata (NYSE:TTM). To be clear, all numbers here are about the Jaguar brand alone - no Land Rover or Range Rover numbers included.

Let's set the stage by looking at Jaguar's and Tesla's 2015 sales statistics - US as well as international. All numbers come from Tesla's quarterly reports, Insideevs monthly U.S. sales statistics, and Jaguar's U.S. and global sales statistics, as reported monthly:

2015

Jaguar

Tesla

Total sales

83986

50568

66%

Jaguar larger

US sales

14466

25416

76%

Tesla larger

US sales %

17%

50%

As you can see, Jaguar and Tesla sell cars in different places. Jaguar is 66% larger than Tesla overall, but Tesla is 76% larger in terms of U.S. sales. This is because 50% of Tesla's sales are in the U.S., whereas only 17% of Jaguar's sales are in the U.S.

How did this 2015 performance change in the first quarter of 2016? Let's examine the numbers:

1Q 2016

Jaguar

Tesla

Total sales

29854

14810

102%

Jaguar larger

US sales

4997

8790

76%

Tesla larger

US sales %

17%

59%

As you can see, Tesla continued to be 76% larger than Jaguar in the U.S. market in the first quarter of 2016, unchanged from 2015. However, Jaguar dramatically outgrew Tesla in terms of total sales, now being over twice as large as Tesla.

Jaguar's U.S. sales remained a flat 17% ratio to its total sales, but Tesla's U.S. sales ratio increased from 50% in 2015 to 59% in the first quarter of 2016. In other words, despite Tesla losing market share to Jaguar globally, it kept its 76% advantage against Jaguar in the U.S. thanks to an increasing concentration of its sales in the U.S. market.

But how long will Tesla continue to sell more cars than Jaguar in the U.S. market? Let's look at the first two months of the second quarter, as we have yet to obtain the numbers for the June month:

US sales

Jaguar

Tesla

April 2016

1087

1650

52%

Tesla larger

May 2016

2164

2800

29%

Tesla larger

As you can see, Tesla's sales advantage in the U.S. market has been dropping fast. From 76% in 2015 and an equal 76% in the first quarter of 2016, to a rapidly declining 52% in April and 29% in May. At this rate, Jaguar will have outgrown Tesla in the U.S. market by August or September!

Clearly Jaguar's superior growth rate in the U.S. market will not likely be perfectly linear every single month. That almost never happens. Still, it should be possible to discern an overall trend in the second half of 2016. Do you think Jaguar will outsell Tesla in the U.S. market in at least three out of six months during the second half of 2016? Or not?

So why is it that Jaguar, aside from outselling and outgrowing Tesla globally, is now also catching Tesla fast in the U.S. market?

The answer is: new models!

It used to be that Jaguar offered three models:

  1. XJ - the large luxury sedan. From $75,395.

  2. XF - the midsize luxury sedan. From $48,495.

  3. F-Type - the two-seat sports car. From $62,395.

In late May 2016, Jaguar started delivering two all-new vehicles in the U.S.:

  1. XE - the compact luxury sedan. From $35,895.

  2. F-Pace - the two-row SUV. From $41,985.

To be clear, the XE had been offered in Europe already since the middle of 2015, and the F-Pace went on sale in Europe in April 2016. Even though U.S. sales of these two models started in the U.S. only in late May 2016, they contributed materially to Jaguar's May month U.S. sales results:

Jaguar US

May

%

XE

598

28%

F-Pace

666

31%

Total

2164

58%

As you can see, in only a matter of weeks these two new models managed to command a combined 58% of Jaguar's U.S. sales in the month of May. Is this a realistic expectation going forward?

Let's begin by looking at how the XE model has done globally, as a percentage of total Jaguar sales. It had been on sale in Europe for a year, before it arrived in the U.S. in May 2016:

Jaguar world

XE

total

%

January 2016

3673

7941

46%

February 2016

2639

6738

39%

March 2016

6521

15175

43%

April 2016

2200

7993

28%

May 2016

3172

10633

30%

As you can see, this percentage seems to have stabilized somewhere around 30%, which is similar to the 28% it achieved in its first (partial) month of U.S. sales. So we can make a good case for why this could continue at this level.

Let's turn to the F-Pace SUV model, which was introduced "only" a month earlier in Europe than in the U.S. - April versus May 2016:

Jaguar world

F-Pace

total

%

April 2016

1523

7993

19%

May 2016

3068

10633

29%

As you can see, while the data probably has not stabilized yet, in its second month of sales the F-Pace SUV constituted 29% of Jaguar's sales. As with the XE, that percentage is very similar to the U.S. 31% number. It seems like a reasonable baseline.

How do we go from here to build a model for Jaguar sales for the rest of 2016? Let's begin by taking a look at Jaguar's month-by-month growth rate for 2016 thus far:

Jaguar world

2015

2016

%

January

5515

7941

44%

February

4504

6738

50%

March

9382

15175

62%

April

5348

7993

49%

May

5605

10633

90%

As you can see, the growth rate was hovering around the 50% mark for the first four months of 2016, and then spiked up to 90% in May. This spike came in part from the introduction of the XE and F-Pace in the U.S. I assume a low-case scenario of 50% for the rest of the year, and a high-case scenario of 70%, splitting the difference between 50% and 90%. This means I'll be using a 60% growth rate as my "mid-case" scenario for the growth in the balance of 2016:

Jaguar world

2015

2016

%

June

7155

11448

60%

July

6917

11067

60%

August

5335

8536

60%

September

10394

16630

60%

October

7467

11947

60%

November

7992

12787

60%

December

8372

13396

60%

FULL YEAR

83986

134292

60%

As you can see, Jaguar selling an estimated 134,292 vehicles in 2016 compares to the mid-point of Tesla's guidance of 85,000. Specifically, that's 58% higher. Considering that Jaguar was 66% larger than Tesla in 2015, that means that on a global basis, Tesla will have grown faster in 2016 than Jaguar on a percentage basis - although barely.

However, things change a bit once we move the comparison between Jaguar and Tesla to the U.S. market only. Let's start by taking a look at Jaguar vs. Tesla U.S. sales for the first five months of 2016:

US sales

Jaguar

Tesla

January 2016

1352

1120

-17%

Jaguar larger

February 2016

1512

1820

20%

Tesla larger

March 2016

2133

5850

174%

Tesla larger

April 2016

1087

1650

52%

Tesla larger

May 2016

2164

2800

29%

Tesla larger

FIRST 5 MOS

8248

13240

61%

Tesla larger

As you can see, Tesla has a 61% head start on Jaguar in the U.S. market, for the first five months of 2016 - 13,240 units vs. 8,248. However, given Jaguar's larger size, comparable growth rate, and increasing dependence on the U.S. market that started in the month of May 2016, is it likely that Jaguar will catch up with Tesla's U.S. sales numbers for the second half of 2016?

Tesla 2016

global sales

85000

US %

50%

US sales

42500

First 5 MOS

13240

Balance

29260

months left

7

US sales/mo

4180

As you can see above, in order to meet the mid-point of the guidance, and assuming 50% of Tesla's sales being U.S. (same percentage as 2015), it would mean selling an average of 4,180 cars per month in the U.S. for the rest of 2016. That would result in 42,500 U.S. sales for Tesla in 2016.

If Jaguar were to catch up with Tesla in the U.S. for the rest of 2016, selling an average of 4,180 vehicles per month, what percentage of Jaguar's total global sales would that have to be? This table yields the percentages:

Jaguar 2016

US

total

%

June

4180

11448

37%

July

4180

11067

38%

August

4180

8536

49%

September

4180

16630

25%

October

4180

11947

35%

November

4180

12787

33%

December

4180

13396

31%

7 months

29260

85812

34%

As you can see above, in order to equal Tesla's U.S. sales for the balance of 2016, Jaguar would have to average 34% of its estimated global sales going to the U.S. That would be exactly double the percentage achieved by Jaguar in all of 2015, as well as the first quarter of 2016 (17%).

Of course, all the other assumptions apply here - including Tesla selling 85,000 cars in 2016, half of them in the U.S., and Jaguar growing 60% globally for the balance of 2016.

Conclusion: Jaguar, already 2x Tesla's size globally in the first quarter of 2016, finally also has a fighting chance to catch up in the U.S. market in the second half of 2016.

Tesla was 76% larger than Jaguar in the U.S. market in 2015, but if the U.S. market manages to take up an estimated 34% of Jaguar's sales for the balance of 2016, Jaguar would have caught up with Tesla in this market.

Do I think it will happen? No, not quite. While I do think that Jaguar will finish 2016 close to 58% larger than Tesla on an overall global basis, Tesla's relatively extreme concentration of sales in the U.S. market will likely continue to mean that it will outsell Jaguar in this particular market in 2016.

My model above estimates that these will be the 2016 sales numbers for the U.S. market for Tesla and Jaguar:

US sales

2015

2016

growth

Tesla

25416

42500

67%

Jaguar

14466

37508

159%

As you can see, Tesla's 67% growth rate for the U.S. market is certainly extremely strong, but if my estimates turn out to be accurate, Jaguar's U.S. growth rate would be even stronger at 159%.

If those numbers are anywhere near reality, as we get to the end of 2016, what would Jaguar's U.S. franchise be worth? Tesla's fully diluted market cap, using 162 million shares, is approximately $35 billion. Assume half the value comes from the U.S. market. If so, shouldn't Jaguar's U.S. business be worth at least $10 billion to $15 billion? Of course, that's before taking into consideration relative profitability.

It's worth noting the contrast to the estimated 2016 global sales figures for Jaguar and Tesla:

global sales

2015

2016

growth

Tesla

50568

85000

68%

Jaguar

83986

134292

60%

As you can see, it remains noteworthy that Tesla would still be growing faster than Jaguar on a global basis, for 2016, although barely.

Based on these numbers, though, is the entire global Jaguar franchise worth almost $50 billion? If Tesla is worth $35 billion…

Disclosure: I am/we are short 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.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. Jaguar hosted the author at vehicle launch event, and provided its new models to test. The author regularly attends new vehicle launch events, press conferences and equivalent, hosted by most major automakers, including Jaguar Land Rover.