Will Tesla Have To Pre-Announce A 42% Q1 Sales Miss? (NASDAQ:TSLA)

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Summary

We now have sales numbers for January and February for Tesla’s biggest countries, including the US and Europe.
For some, we have only January as of yet, but they are remarkably consistent with the ones from whom we also have February numbers.
Adding it all up, it’s looking like a 42% shortfall for Tesla.
Adding up all geographies, it looks like Tesla sold an estimated 11,548 cars in January and February combined. Can Tesla deliver a similar number - 11,548 - in March alone?
If so, the quarter would end at 23,096 units - a 42% shortfall from a 40,000 unit consensus (25,000 Model S and X combined, plus 15,000 Model 3).

We all know that Tesla's (NASDAQ:TSLA) Model 3 sales have already fallen way behind Tesla's guidance this quarter. Its guidance has been for 400,000 Model 3 units in 2018, for a total of 500,000 units when adding 100,000 from the Model S and X columns.

With 1,875 Model 3 units in January and 2,485 in February, the Model 3 already is looking like an epic miss of Olympian proportions. At 2,500 per month, that would be a measly 30,000 a year, or more than a 90% shortfall from the 400,000 per year guidance. Adding insult to injury, Tesla admitted in its February 7 financial report that the Model 3 has negative gross margin even at a selling price that's currently starting at $50,000. One certainly understands the company's reluctance to start selling the $36,000 version.

But enough about the Model 3 for a change. Seeing as the Model 3 is suffering from an amazing inability to enter proper volume production, Tesla is left with selling its existing models - Model S and X. So, how are they doing?

Let's start with the six countries in Europe that as of the time of this writing (Saturday) have reported February month numbers to their respective government registration authorities:

Model S+X	Jan-Feb 2017	Oct-Nov 2017	Jan-Feb 2018	sequentially	year/year
Norway	467	1288	296	-77%	-37%
Germany	353	422	237	-44%	-33%
Belgium	138	144	76	-47%	-45%
Austria	115	108	52	-52%	-55%
Sweden	179	148	48	-68%	-73%
Finland	42	30	4	-87%	-90%
TOTAL	1294	2140	713	-67%	-45%

As you can see in the table above, it's a massacre. No matter whether you compare the two first months of this quarter with the first two months of the previous quarter, or the one a year ago, sales are down by epic proportions. Down 45% from last year, and down 67% from last quarter.

Alright, I know from geography class that Europe consists of more countries than just six. While these six countries are among Tesla's top dozen countries in Europe, they are unfortunately the only ones who reported February numbers as of this writing.

Therefore, in the interest of fairness and as a "double-check" on these numbers, let's look at the other six top Tesla European countries for the January-only comparisons. These comparisons are vs. January a year ago, and the first month in the previous quarter - October 2017:

Model S+X	Jan 2017	Oct 2017	Jan 2018	sequentially	year/year
UK	325	327	139	-57%	-57%
Holland	115	175	77	-56%	-33%
Switzerland	103	155	15	-90%	-85%
Italy	20	59	29	-51%	45%
Spain	23	23	23	0%	0%
France	72	93	12	-87%	-83%
TOTAL	658	832	295	-65%	-55%

As you can see in the table above, the situation is remarkably similar to the one for the other six countries for whom we have not only January numbers, but also February. These are down 65% vs. 67% for the other half-dozen countries. Year over year, these are down 55% vs.45% for the other. Split the difference, and we're at a nice round 50% year-over-year decline.

Just like Europe doesn't consist of six countries, the world doesn't consist of only Europe either. Let's add Tesla's home market, the U.S., to this analysis. We do this by virtue of getting the January and February Model S and X numbers from Insideevs, the agreed-to-by-all-parties most accurate estimator of Tesla monthly U.S. sales numbers: here.

Tesla USA	Jan-Feb 2017	Oct-Nov 2017	Jan-Feb 2018	sequentially	year/year
Model S	2650	2455	1925	-22%	-27%
Model X	1550	2725	1575	-42%	2%
TOTAL	4200	5180	3500	-32%	-17%

As you can see in the table above, Tesla's Model S and X sales in the U.S. are down this year, but not as much as they are in Europe. They are down 32% sequentially and 17% year over year. Those are horrible numbers, but not as bad as the declines in Europe that are more than twice as bad.

So what if we aggregate Tesla's top six countries in Europe that have reported February numbers, with the U.S. estimates from Insideevs? What's the combined result?

Tesla US+E	Jan-Feb 2017	Oct-Nov 2017	Jan-Feb 2018	sequentially	year/year
Europe	1294	2140	713	-67%	-45%
USA	4200	5180	3500	-32%	-17%
TOTAL	5494	7320	4213	-42%	-23%

As you can see in the table above, Tesla's combined Model S and X sales so far this year, between the U.S. and six of Tesla's top countries in Europe, are down 42% sequentially from the first two months of the previous quarter, and down 23% from a year ago.

So which of these two numbers - a 42% sequential decline and a 23% year-over-year decline - is most relevant? Frankly, I don't care. Argue it as you wish. Pick your favorite plague and compare it with your favorite cholera. Tesla is trading at a hyper-valuation, based on a hyper-multiple, and is therefore supposed to be a hyper-growth company. If the product was extremely profitable and there were no balance sheet issues or any other "hair" on the story, year-over-year growth of 50% or 100% or something like that, might be considered acceptable for a hyper-growth company.

But not a decline of 42% or a decline of 23%.

Of course, there are at least two factors that we do not know in order to complete the picture for the quarter:

Sales outside Europe and the U.S.
Sales in the month of March.

It's entirely possible that the Model S and X are able to dig themselves out of the massive hole created by a 42% decline thus far from last quarter, in Europe and the U.S. combined. For starters, Tesla sells to some other countries. Maybe China is having a monster quarter? Perhaps Zimbabwe or Uzbekistan are coming to the rescue? I'm sure some eccentric billionaires in Iceland and New Zealand can pitch in for a few cars.

I have not found reliable February numbers from China. For January, the Tesla China numbers were a disaster: here.

Basically, the Tesla Model X sold only 500 units in China, putting it behind not only one, but two, Trumpchi models (no, I kid you not), as the two Trumpchis sold a collective 1,043 units. Year over year, the Tesla Model X number was down from 624 last year: here. That's a decline of 20%.

Adding insult to injury, the Tesla Model S sold only 330 units in China in January, bumping it off the top-20 best-selling plug-in list. Cadillac's (GM) plug-in luxury sedan, the CT6, outsold it with 451 units. Yes, Cadillac.

All that said, the situation in China is simple and most brutal: The top 15 best-selling plug-in cars are domestic Chinese brands that we never see here in the West. In this context, Tesla is going from being an already tiny player in China to somewhere way to the right of the decimal point. It's simply not a factor, and the 20% decline in the Model X this year suggests confirmation of that tailspin.

Now of course, we are on the lookout for reliable February numbers from China. Perhaps January was a fluke, and Tesla turns it around the second half of the quarter. An update to this article will be due, at some point within the next few weeks.

More generally, we know that Tesla's quarters always are extremely back-end loaded. Looking historically, almost regardless of geography, the last month in the quarter tends to be by far the biggest.

I have no reason to believe that pattern won't repeat itself yet again this quarter. However, that also raises the hurdle for what Tesla needs to accomplish in the month of March. With the sequential and year-over-year comps being so high for the final month of the quarter in the past, that leaves precious little room for error this time around March 2018.

Does Tesla have to pre-announce a 42% March quarter sales miss?

We are now four weeks away from the end of the March quarter. Given shipment times to overseas markets, Tesla's direct sales model, and 3-6 week delivery time for its tiny rate of Model 3 units leaving the factory, Tesla's management knows right now with some relative precision what its March quarter deliveries will be. Tesla cannot claim to be surprised, in the last week of the quarter, as to what the number turned out to be. That's simply not a valid excuse for a company which should know this number with a high degree of accuracy at least a month in advance.

For that reason, and with the background of 1Q looking like a 42% miss based on all available numbers, Tesla had better "know" already now, that it can overcome this sales deficit, in order to avoid having to pre-announce a sales miss, before its usual reporting schedule. Remember, Tesla's policy is to announce a quarter's deliveries at some point within the first five days of the quarter's end. We would normally expect Tesla to report the quarterly number right around April 3.

This would be the right thing to do under any normal circumstance, in any quarter. However, this quarter Tesla may have raised the bar on its reporting requirement for any potential shortfall. Why? Because it told one media outlet - BusinessInsider - apparently on February 21 or shortly before, that "Tesla confirmed to Business Insider that the Model S and X delays are due to an increase in demand...": here.

So what Tesla said - or at least implied to anyone understanding plain English - at that stage of the quarter, was basically that business was not only good, but improving. Given that every single Tesla sales number, from every single geography, that I showed above, was not only bad, but an outright catastrophe, how could Tesla's statement to BusinessInsider be even remotely true?

I suppose that there is only one way out. Tesla's statement could, perhaps, be interpreted to have had some accuracy if it knew at the time, based on backlog and shipment schedules, that the month of March was going to redeem itself to the point where there would be massive sales increases beyond the market's expectations.

If Tesla did not know that at the time, then the clock is now urgently ticking for Tesla to pre-announce what its expected March quarter sales number is expected to be. Tesla knows what the Wall Street consensus number is. Does it have reason to believe it will fall short, despite telling BusinessInsider on February 21 that it is experiencing "an increase in demand?"

Let's add it all up, where Telsa stands two-thirds through the March quarter (all lines not saying "Model 3" are of course Model S and X only, for Model 3 is sold only in North America thus far):

Europe top 6 countries Jan-Feb	713
Europe other 6 countries Jan	295
Europe other 6 countries Feb (est)	450
Other Europe Jan-Feb (est)	100
North America Jan-Feb	3500
China Jan	830
China Feb (est)	1000
Rest of World Jan-Feb (est)	300
Model 3	4360
TOTAL	11548

As you can see in the table above, based on the best available data to date, plus some estimates to fill the remaining gaps, Tesla sold 11,548 cars in January and February. What is the Wall Street consensus for the March quarter? It's somewhere around 40,000 units, right? 25,000 Model S and X, plus 15,000 Model 3.

If Tesla knows that it did approximately 11,548 units in January and February combined, and it knows at this point that getting to approximately 40,000 for the March quarter as a whole is all but impossible, is it required to let the investing public know as soon as possible, right now, or is it permissible to wait until after the quarter has ended?

Let's assume that Tesla magically manages to sell as many cars in March as it did in January and February combined. That means it would end the quarter at 23,096 units (2 x 11,548). Divide by 40,000 and you have 58%. In other words, a 42% shortfall. If you lock in the combined US plus Europe table above, that also yielded a 42% sales decline from the previous quarter.

Amazing coincidence, right? A 42% March quarter sales shortfall, either way.

So when will Tesla pre-announce the number? Will it wait until April 3, plus or minus a couple of days, or will it first try to raise money before it ends up disclosing a material shortfall in sales?

This article was written by

Anton Wahlman

7.06K Followers

I am a former sell-side analyst -- UBS 1996-2002, Needham 2002-2006 and ThinkEquity 2006-2008. These days I review automobiles and other technology products, as well as analyze the automotive and technology industries, and coming up with long/short ideas. I also continue to write (less frequently) on macroeconomics and politics.

Analyst’s 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.

At the time of submitting this article for publication, the author was short TSLA and long GM. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.

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