Tesla Q1 Push Faces Major Uncertainty (NASDAQ:TSLA)

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Summary

Europe Q1 2020 registrations not doing well against Q4 2019.
How has coronavirus impacted Shanghai Model 3 and Model Y ramps?
Economic worries and gas price declines don't help EV shift.

The final three weeks of a quarter generally are the most important ones for electric vehicle maker Tesla (NASDAQ:TSLA). As we've seen in the past, this is the time where the company has a large push to deliver as many vehicles as possible. With the stock price having soared this year on hopes related to massive growth in the name, this quarter's push is likely to be the most uncertain one we've seen in some time.

The Tesla bull camp continues to spread the notion that the company is production constrained. In Q4 2019, the company produced 104,891 vehicles and delivered 112,095 vehicles, both being quarterly records. The situation was helped by expiring tax benefits in both the US and the Netherlands. Those bullish on the name said that other European markets, primarily the UK, would offset the Netherlands losses in Q1 2020. Unfortunately, with two months of estimated registration data in, the numbers don't look good.

(Source: Tesla Motors Club Europe, seen here)

Here's the really interesting part. Even if you want to use year over year numbers, February 2020 is only up a little more than 100 units over last year, and this is despite the extra day in the month this year. Also, last year's February was the first month where deliveries started ramping in Europe. A good number of these countries didn't start getting the Model 3 until a week or two into the month, and the UK/Sweden didn't get any in the month.

Data we do have through the first few days of March for Norway, the Netherlands, and Spain shows a similar picture to the one above. For the first six days, there were 368 Model 3 registrations, compared to 1,735 in the first six days of December 2019. In addition to a lot fewer units being registered for these countries, there's been fewer Performance Model 3s being delivered, and the Netherlands is seeing a very high percentage of Standard Range plus variants right now. This could have margin implications for the quarter if the trend continues throughout this month.

So what about the United States? Well, InsideEvs estimated that Tesla delivered 22,425 Model 3s in Q1 2019 and 47,275 in Q4 2019. With the last portion of the US Federal tax credit ending and the California benefit declining, I highly doubt Tesla will come anywhere close to Q4 2019's figures. Even if we say Q1 2020 will average the two periods detailed above, that's a loss of more than 12,000 units sequentially. InsideEvs doesn't estimate monthly units anymore, so we'll have to see if CleanTechnica or some other side provides any estimates through February in the coming days or weeks.

The big wild card in all of this is the coronavirus. Not only has the company delivered some mixed messages when it comes to the China factory, but we don't know if the Fremont factory is facing supply issues either. The major wake up call in the market started in the US during the last week of February and the first week of March. Depending on where you are in the country, that's about the latest time to custom order a Model 3 for Q1 delivery. If consumers start to panic, demand could fall, which gets me to CEO Elon Musk's tweet from just before last Friday's closing bell:

(Source: Elon Musk twitter, seen here)

Is the CEO trying to warn about the company's Q1 period without actually issuing a warning? At the end of January, Elon Musk tweeted out that the coronavirus was just like other forms of the common cold, indicating he thought it was no big deal. As he keeps brushing this virus aside, Tesla management will lose even more credibility if it comes out and blames the coronavirus in a major way for any Q1 troubles.

The other thing investors have to consider is how Tesla may end up doing in this economic environment. Automotive companies are usually hit hard during recessions, a scenario that may be possible in the US and around the globe if the coronavirus situation worsens. Worse yet for Tesla is that this market panic is sending oil and gas prices down a bit, which doesn't help bolster the argument for electric vehicles. As the chart below shows, US gas prices are mostly under their long term average, with the potential to dip lower still.

(Source: gasbuddy.com price charts, seen here)

As the final weeks of the first quarter come to an end, investors will be looking to see how Tesla's usual end of period push goes. Unfortunately, this time around things look a bit more uncertain than normal, as the coronavirus may be impacting things at both of the company's factories. Of course, if things don't turn out well, it will be hard for management to blame this all on the virus, since Elon Musk seems extremely dismissive of it. Q1 sales in Europe have not done well so far, and I don't think the US is repeating Q4's volumes, so March will need to show a lot of improvement if the bulls want to keep the production constrained narrative going.

This article was written by

Bill Maurer

34.88K Followers

I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

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