2016 Sales Data In: Mercedes Out-Grew Tesla 8:1

| About: Tesla Motors (TSLA)

Summary

When the whole market is growing at a most healthy clip, absolute unit growth can be as important as percentage growth.

In 2016, Mercedes out-grew Tesla 8:1, BMW 4:1, Audi 3:1, Jaguar 3:1 and so forth.

On a percentage basis, only Jaguar out grew Tesla in 2016 (77% vs 51%).

If the whole market slows down or declines outright, but Tesla keeps growing near 50%, then sentiment will change among the competitors.

Until then, Tesla growing sales little over 25,000 units per year just doesn’t make a dent when Mercedes grows over 212,000 units per year.

Everyone knows Tesla (NASDAQ:TSLA) is growing unit sales at a rapid clip, on a percentage basis. Being a tiny automaker, it has to, at a bare minimum, in order to become a large one - and to obtain a premium valuation in the market.

Tesla has been growing its unit top line around 50% per year, although it has guided 2017 growth to a far higher number, and then much higher again in 2018. Tesla's 2017 guidance is for 100,000 to 200,000 Model 3 units, and then 500,000 units for 2018. At the mid-point for 2017 - 150,000 - it would represent a dramatic acceleration from the 50% growth achieved in 2016.

However, there is another way to look at growth. At least until the end of 2016, we have been in a growing auto market globally for a few years, and especially so in terms of premium cars. In a growing market, almost nobody "feels the pain" of actual unit declines. It's only been a matter of how much things are up.

In such a growing market, it's a lot harder for an automaker to look at a tiny automaker - which happens to be growing quickly - and see it as much of a threat. Basically, the reasoning becomes this: "If I'm growing at a healthy clip, why do I care if some ultra-tiny automaker is growing at a higher percentage rate?"

Yes, we are not denying basic math here: Over a longer period of time - many years - a higher percentage growth has a huge impact, obviously. But in the short term, in a market where everyone is growing, the percentage rate of growth by a small upstart means a lot less to the larger established players.

I am showing 2016 vs 2015 global sales data on 12 premium auto brands listed in the table below. We can argue how relevant Buick and Jeep (NYSE:FCAU) are in this context, but for what it's worth Buick is premium to Chevrolet inside General Motors (NYSE:GM), even though it sits below Cadillac. Jeep is a "sort of" premium brand, in that it's a specialty brand that is commonly associated with rugged 4x4 vehicles that usually command a premium over "plain vanilla" sedans and crossovers.

Likewise, all of these "premium brands" are not all the same in other aspects either. Land Rover only makes SUVs, for example - just like Jeep. Jaguar never sold an SUV until the second quarter of 2016. And not all "premium" is equally premium. Volvo has a different average selling price than Cadillac, for example.

There also are premium auto brands for whom I was unable to obtain reliable global sales data for both 2015 and 2016, so I have omitted those from these tables: Lincoln (NYSE:F), Acura and Genesis.

In any case, let's look at a table that shows the growth as measured by unit increases in 2016 sales, as compared to 2015:

Brand

2015

2016

growth

ratio to Tesla

Mercedes

1,871,511

2,083,888

212,377

8.27

Buick

1,231,938

1,435,384

203,446

7.93

Jeep

1,237,583

1,401,000

163,417

6.37

BMW

1,905,234

2,003,359

98,125

3.82

Audi

1,803,246

1,871,350

68,104

2.65

Jaguar

83,986

148,730

64,744

2.52

Land Rover

403,079

434,582

31,503

1.23

Volvo

503,127

534,332

31,205

1.22

Cadillac

277,857

308,692

30,835

1.20

Tesla

50,568

76,233

25,665

1.00

Lexus

652,451

677,615

25,164

0.98

Infiniti

215,520

230,173

14,653

0.57

As you can see in the table above, Tesla is third from bottom in terms of unit sales growth for 2016. Mercedes out grew Tesla in 2016 to the tune of an 8:1 ratio, and BMW to the tune of a 4:1 ratio (rounded to the nearest full number).

Only Lexus and Infiniti grew less than Tesla in 2016, and they were relatively close - Lexus within a rounding error.

At some level it's not surprising that Tesla is among the very smallest in terms of 2016 sales growth because it's the smallest premium auto brand to begin with. But still, when Mercedes out-grows Tesla to the tune of 8:1 and BMW by 4:1, is it any wonder that they really don't care about Tesla's very small unit growth numbers?

Put differently, Mercedes' sales increase in 2016 was approximately 3x that of all of Tesla's 2016 sales. Jeep's 2016 sales increase was more than 2x all of Tesla's 2016 sales.

Another observation is how much better Mercedes did in 2016 than its two main German-based rivals, BMW and Audi. It was basically double BMW and triple Audi.

There are other puts and takes here as well. Tesla would correctly say that it only sells two models (S and X) and that it doesn't (yet) operate in nearly as many countries as all the other brands in the table above. All of that is true. Tesla would sell more cars if it had a smaller hatchback (Model 3) and a less pricey crossover/SUV (Model Y).

Tesla's competitors would respond by pointing out that Tesla is likely the only brand in the table that's also losing money - and lots of it, by the way. If any of the other brands decided to cut the prices of their cars to the point where they also lost as much money as Tesla, they would sell a lot more cars. How many more cars would Mercedes sell if it reduced the prices of every car they sold by $30,000 apiece?

But let's look at percentage growth for a moment:

Brand

2015

2016

growth

growth %

Jaguar

83,986

148,730

64,744

77.1%

Tesla

50,568

76,233

25,665

50.8%

Buick

1,231,938

1,435,384

203,446

16.5%

Jeep

1,237,583

1,401,000

163,417

13.2%

Mercedes

1,871,511

2,083,888

212,377

11.3%

Cadillac

277,857

308,692

30,835

11.1%

Land Rover

403,079

434,582

31,503

7.8%

Infiniti

215,520

230,173

14,653

6.8%

Volvo

503,127

534,332

31,205

6.2%

BMW

1,905,234

2,003,359

98,125

5.2%

Lexus

652,451

677,615

25,164

3.9%

Audi

1,803,246

1,871,350

68,104

3.8%

As you can see in the table above, Tesla is the second-fastest growing premium auto brand on a percentage basis after Jaguar. Jaguar and Tesla are also the two smallest, in terms of absolute size. Considering that Jaguar outgrew Tesla in 2016, Jaguar actually widened the gap to the slower-growing Tesla in 2016.

Once you look at the list below Jaguar and Tesla, however, you see precious little correlation between size and growth rate. Yes, Mercedes (DDAIY), Jeep and BMW are large and they grew among the fastest. However Audi and BMW are also among the largest, and they grew among the least, on a percentage basis. So there is just not a whole lot of correlation there, other than Jaguar and Tesla who are the smallest but growing the fastest on a percentage basis.

Conclusion: The big automakers are not worried. Not yet anyway.

If in 2017, the big premium auto brands such as Mercedes and Buick start to see radically reduced growth rates - perhaps even absolute sales declines - and Tesla continues to grow anywhere near 50%, the situation will change. However, as long as almost all of these premium auto brands add more units per year than Tesla does, any worrying about Tesla will be muted. Tesla adding barely over 25,000 units per year just isn't all that much when Mercedes adds over 212,000 units per year.

Disclosure: I am/we are long F, GM.

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 long GM and F. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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