The Race To 100,000: Will Tesla Model 3 Or Nissan LEAF 2.0 Get There First?

Summary

• This is the time to lay your cards on the table and provide your estimates for Tesla Model 3 unit sales in 2018 vs Nissan LEAF 2.0 unit sales.
• I provide the reasoning for my estimates, which are 100,000 of each of these two cars, for 2018.
• The geographic distribution will likely be extremely different: Tesla almost 100% of sales in the U.S., whereas Nissan spread more evenly across three continents.
• Nissan’s risk-mitigation also flows from its three factories, located in Japan, U.S. and U.K.  This compares to Tesla’s sole factory, in the U.S.
• Nissan provided a video of its LEAF assembly line in Japan. When will Tesla show the sustained pace of its Model 3 production line?

The best-selling electric car to date is the Nissan (OTCPK:NSANY) LEAF. Nissan says it’s sold over 283,000 to date, starting in late 2010. This compares to Tesla (NASDAQ:TSLA), which had sold approximately 233,000 cars since inception - all models combined, Model S, Model X and the Roadster - through 2Q 2017.

Of course, Nissan as a brand and even more so as a group/alliance (which includes Renault and Mitsubishi) has delivered way more than 283,000 EVs in total. Still, the LEAF remains the electric car sales leader to date for a single nameplate.

Now that the LEAF 2.0 has been introduced, and sales are beginning in Japan on October 2, it is therefore of greatest interest to forecast how this car will perform versus its closest competitor from Tesla, the Model 3. Which of these cars will sell more units in 2018?

I know what some of you are saying: How can you compare these two cars? The Tesla Model 3 is more expensive, starting at $36,200 vs. $30,875 for the LEAF 2.0. Also, the Model 3 comes with a choice of two larger batteries than the initial version of the LEAF 2.0, whereas it will be a year from now until the LEAF 2.0 will be available with a more direct-competition 60 kWh battery version (base Model 3 is somewhere between 50 and 55 kWh, and the higher-end version is close to 75 kWh).

In other words: I know, the Model 3 is a more expensive car, and it’s also longer and wider than the LEAF. The average Model 3 selling price from Day One will likely be at least around $50,000, as it can be optioned to approximately $60,000. Nissan LEAF will likely average below $35,000 - and that’s before you take into consideration retail discounts that can often run well above 10%, sometimes 20% or more, making the price discrepancy even larger.

Still, these two EVs will almost certainly be the two global volume EV leaders in 2018, at least as far as EVs are concerned that are intended for global distribution (You could envision a China-only EV such as from BYD (OTCPK:BYDDY) or Geely (OTCPK:GELYF) taking off like crazy because of some Chinese government incentive scheme, but not be exported out of China in any huge quantity, especially to the U.S. or Europe).

Until now, no EV model has sold to the tune of 100,000 per year. Nobody has gotten even close. For example, here is the global tally of EV sales for 2016: World Top 20 December 2016 (Updated)

1. Nissan LEAF: 51,882 units

2. Tesla Model S: 50,944 units

(see the link for the rest of the list)

And no model was close to those two EV sales leaders either.

However, 2018 looks like the year when an electric car model can reach 100,000 unit sales globally. To be clear, I'm talking about a single model, aka a nameplate here. Not a company’s plug-in sales as a whole. Tesla as a whole will likely reach the 100,000 mark in 2017, if only by the tiniest of whiskers. I am also not including plug-in hybrids: BMW will just about reach 100,000 total plug-ins sold in 2017 (similar to Tesla), but it will be a mix of both pure EVs and PHEVs (plug-in hybrids).

The critical factors determining the Nissan LEAF 2.0 vs Tesla Model 3 sales tally for 2018 are these three:

1. Fundamental demand.

This is the most controversial one on which to opine, and there is no objective answer to it. The cars themselves need to be put in relation to their prices, and so forth. Obviously the Tesla Model 3 is a more expensive car than the Nissan LEAF 2.0, but someone could argue that the Model 3 provides a lot of range and performance for the price - and it looks great. In Tesla’s case, the 455,000 refundable deposits as of June 30, July 28 or early August (Tesla was a bit unclear on the timing) may also be an indication of demand, but there are also arguments as to why many of those deposits will be refunded before any sale takes place.

On the other side of the equation, a familiar argument as to why LEAF 1.0 sales disappointed 2010-2017 is that most people thought the car was extremely ugly. Few people who has seen the LEAF 2.0 in person would disagree with the proposition that the LEAF 2.0 is a huge improvement in exterior design. How big a difference will this make in terms of sales? Impossible to tell at this point, but one would like to think a huge improvement in looks would be a big deal in the sales department.

2. Production capacity.

This one is easier to assess, but still not easy. We know that Nissan has three LEAF factories on three different continents. In each of these factories, all sorts of other Nissan Group vehicles also are built. This week, Nissan produced a video showing its LEAF production in Japan up and running, inter-mixed with other models on the assembly line: Production Of 2018 Nissan LEAF To Begin In US & UK By The End Of 2017.

(Notice that the author of that article thinks that 100,000 to 150,000 LEAF 2.0s could be sold in 2018.)

Nissan’s LEAF 2.0 production in the U.S. and the U.K. will be underway in the next 1-3 months. If Tesla had a similarly impressive production line to showcase, it would most likely have produced a similar video of a production line moving at normal pace. In this case, the absence of an assembly line video from Tesla informs us that the Model 3 is not yet being mass-produced. But it will happen soon, most likely before the end of 2017.

Nissan is not likely meaningfully production constrained. Between their three factories, it can easily produce over 100,000 LEAFs per year. Remember that back in 2010, Nissan talked about these factories gearing up for 500,000 LEAFs a year, collectively. Well, that obviously didn’t work out: Nissan Will Sell 500,000 Electric Cars a Year by 2013, Says Chief

In contrast, Tesla is working under the assumption that it needs to quickly get to a 500,000 unit a year capacity - already in 2018! - in order to fulfill all the demand that’s already on the books, and presumably a lot more to come. Leaving aside the issue of whether most of the current refundable deposits will be converted into sales, how far can Tesla expand production in its sole factory?

Tesla has guided to 500,000 units in 2018. That compares to approximately 100,000 delivered over the last four quarters combined. Remember, Tesla’s initial guidance from the May 2016 conference call was for 100,000 to 200,000 Model 3 units in the second half of 2017. I’m not aware of a single major sell-side analyst who thinks Tesla will get even close to that 2017 Model 3 range anymore. Maybe 100,000 to 200,000 is now interpreted to be the realistic range for all of 2018, not the second half of 2017.

3. Geographic focus.

This is a key difference between Tesla and Nissan. Tesla probably won’t be sending many Model 3 units outside the U.S. until it has focused on sending as many as possible to U.S. customers for them to first milk the U.S. Treasury for Federal tax credits. As I have pointed out in previous articles, once an automaker hits 200,000 units of plug-ins sold in the U.S., it has up to six full quarters to sell an unlimited number of cars eligible for U.S. Federal tax credit.

One would therefore assume that Tesla will go as far down that U.S. list of eligible Federal tax credits as possible, before shipping Model 3 units abroad. Ask Model 3 deposit holders ranging from Japan to the U.K. as to when they expect delivery of their $36,200-equivalent Model 3 cars. I don’t think you will see many of them, if any at all, much before 2019.

As a result, the distribution of LEAF 2.0 sales will likely be very different compared to Tesla Model 3, in 2018. Because of the unlimited number of U.S. tax credits available for up to six full quarters, one might reasonably suspect that Model 3 deliveries will be well over 90% U.S.-focused in 2018, maybe even 99%.

Nissan’s geographic distribution? Not like that at all. LEAF 2.0 units made in Japan will be sold in Asia. Units made in the U.S. will be sold in the Americas. And units made in the U.K. will be sold in Europe and perhaps to other odd geographies.

This isn’t to say that Nissan’s 2018 LEAF 2.0 geographic distribution will be one-third for each geography. But hey, it is a workable assumption at this point.

For example, we just got the August sales numbers from Norway: Norway August 2017

As you can see, the current (OLD) Nissan LEAF 1.0 has sold 2,800 units year to date in this tiny country of 5.3 million people. That suggests annualized sales of at least 4,000 units. When the all-new Nissan LEAF 2.0 hits Norwegian dealerships in January 2018, one might surmise that these numbers will be a lot higher for all of 2018.

The bottom line: Who will be the first to 100,000?

This is the moment when it will be interesting to see who will turn out to be right and who will be wrong about the 2018 EV sales leader on a global basis. Let’s put the cards on the table now, in September 2017, and see who turns out to be right, once the two numbers are revealed in January 2019.

I will get the discussion going by estimating, based on the factors discussed above, that Nissan will sell 100,000 LEAF 2.0 cars worldwide in 2018. I also estimate that Tesla will sell 100,000 Model 3 cars worldwide in 2018. That would make it a tie.

But of course, we can’t have a tie. That would be boring. I give Nissan the tie-breaker nod, predicting that LEAF 2.0 will out-sell the Tesla Model 3 by a tiny margin in calendar 2018. The reason for the tie-breaker in Nissan’s favor is the geographic distribution of its factories: If something goes wrong with a factory, Nissan has its risk spread across three factories on three continents.

For purposes of definition, a sale is hereby defined as it always is in the automotive industry: When the customer has taken delivery and the car is being registered by the authorities as a car that is in customer operation. In other words, the way Nissan and all the other major automakers report sales numbers every month.

My cards are now on the table: 100,000 units of each car sold in 2018. Please provide your own numbers and elaborate on your reasoning for the two numbers you have chosen. There will be no prizes for winning, but surely a lot of entertainment going back to this page in January 2019 to see how far off most of us turned out to be.

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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.