Tesla's Sales Collapse In Europe: Down 63% This Quarter

Summary

• European sales are in, for January and February: Tesla down 63%.
• On a blended basis, Tesla’s US+European sales are down 46% two-thirds into the quarter.
• With the Model S+X at 25,000 per quarter and the Model 3 going from 1,000 per week to 2,500 per week, the total expectation should be as high as 43,000.
• Assume 3,000 for in-transit vehicles and the net would be 40,000.  Still, Tesla’s sales thus far point to a sequential decline from December’s 29,967 units.
• This significant shortfall from expectations may be what Tesla’s accounting boss saw when he abruptly resigned the other day.

It was only a week ago that I published an article showing that Tesla (NASDAQ:TSLA) is on track to see a 42% sales decline in the March quarter. One of the uncertainties that I stated in my analysis, was that not all countries in Europe had yet reported. I only had the February data for six European countries.

Therefore, the verdict could have changed if the remaining countries had posted meaningfully better results for February, as opposed to January. Well, now we have the February results from 12 of Tesla’s top countries in Europe, so this uncertainty has been removed:

Model S+X	Jan-Feb 2017	Oct-Nov 2017	Jan-Feb 2018	sequentially	year/year
Holland	306	521	310	-40%	1%
Norway	467	1288	296	-77%	-37%
UK	520	802	289	-64%	-44%
Germany	353	422	237	-44%	-33%
Belgium	138	144	76	-47%	-45%
France	139	225	63	-72%	-55%
Austria	115	108	52	-52%	-55%
Switzerland	152	260	52	-80%	-66%
Sweden	179	148	48	-68%	-73%
Italy	61	104	44	-58%	-28%
Finland	42	30	21	-30%	-50%
Luxembourg	26	12	5	-58%	-81%
TOTAL	2498	4064	1493	-63%	-40%

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As you can see in the table above, Tesla’s sales in Europe are down 63% for the first two-thirds of the March quarter, compared to the December 2017 quarter. The only country of any remotest significance which has not yet reported is Spain. However, Tesla has traditionally sold between 15 and 23 cars per month in Spain, so Spain is simply not material. That’s as many cars as a single car dealership is supposed to sell in less than one week.

One does not need to be Sherlock Holmes to see that this is why Tesla’s head of sales, John McNeill, may have left Tesla a month ago. Then, just the other day, Tesla’s top accountant left the company: Tesla lower as it discloses chief accounting officer exit

These abrupt departures naturally reflect what is almost certain to be a major quarterly automotive unit sales shortfall from Tesla. So what are expectations for the quarter?

Let’s start with the Tesla Model S and X. Tesla has said that we should expect 100,000 units per year, which is 25,000 per quarter. Then add the Model 3. So to what level has Tesla guided the Model 3?

It said on January 3 that the exit rate in last week of December was 1,000 units per week. It also said, and reiterated on the February earnings call, that it expects to end March at 2,500 units per week. So, the quarter should be a blend of 1,000 per week and 2,500 per week:

8 weeks x 1,000 units = 8,000 units.

4 weeks x 2,500 units = 10,000 units.

TOTAL: 18,000 units.

However, we should subtract some for “vehicles in transit” and equivalent, so let’s reduce that number by 3,000, for a total of 5,000. Adding the 25,000 for Model S+X combined, That puts the quarterly total at 40,000.

Based on that, given that Tesla is down 63% in Europe with two-thirds in, what should be the total automotive units for Tesla’s March quarter?

For this, let’s add the U.S. sales numbers, courtesy as always from Insideevs.com:

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%

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As you can see in the table above, the U.S. decline was about half compared to Europe -- 32% versus 63%. So let’s add them together:

Tesla US+E	Jan-Feb 2017	Oct-Nov 2017	Jan-Feb 2018	sequentially	year/year
Europe	2498	4064	1493	-63%	-40%
USA	4200	5180	3500	-32%	-17%
TOTAL	6698	9244	4993	-46%	-25%

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As you can see in the table above, adding Europe and the U.S. combined, we get to a blended 46% decline for the first two months of the March quarter. Now, let’s add China and the other geographies to the total:

Europe top 12 countries Jan-Feb	1493
Spain Jan	23
Spain Feb	30
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	11636

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As you can see in the table above, we can estimate Tesla’s global automotive unit sales in January and February combined, to 11,636. So what about March?

For Tesla, the third month of the quarter can often be twice, or even more than twice, as large as the first two months combined. Let’s take two scenarios:

March is 2x January+February combined: 23,272 units.

March is 2.5x January+February combined: 29,090 units.

It’s obviously impossible to say with any certainty, yet, where in (or outside) this range, Tesla’s March automotive unit sales will land. Bill Maurer’s work on analyzing the Norwegian market [ Tesla Needs A March Miracle ] suggests that Tesla is falling way behind in this critical market, in the early days of the month of March. This is a very bad sign -- but it’s only one country out of several, including the U.S. and China.

And for those who ask: Yes, I have seen the reports of this-or-that boat on their way with freshly minted Teslas, now in transit to China and Europe. There are thousands of cars on the way, as many as almost 2,000 Teslas per boat, in a couple of instances.

That is normal. In order for Tesla to get even close to 23,000 or 24,000 units this quarter -- let alone 29,000 or 40,000 -- there had better be multiple of those boats on their way to those far-flung geographies. However, we cannot yet say whether this will mean that Tesla’s quarter will end up closer to 23,000 or closer to 29,000 units delivered.

However, the recent departures by Tesla’s head of sales, and the head of accounting, are ominous signs that things are at least not trending to the 40,000 units that Wall Street may be expecting, based on what Tesla has said about Model 3 production and Model S and X sales combined, as I showed and described above.

Maybe Tesla’s head of sales, and Tesla’s accounting chief, saw these numbers and figured that there was no way Tesla would deliver on 40,000 units this quarter. Perhaps a lot closer to the 23,000 to 29,000 range.

Combined with negative gross margins on the Model 3, as Tesla stated in its 4Q investor letter in February, are Tesla’s investors prepared for a March quarter automotive unit number that doesn’t have a “3” or “4” at the beginning?

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