Tesla's Growth End Game: An Update On My Old Tesla Sales Estimates From 2013 - Tesla Will Barely Catch Up With Volvo's Sales

Feb. 05, 2019 10:19 AM ETTesla, Inc. (TSLA)GELYF3 Comments
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Contributor Since 2012

Tales From The Future (TFTF). I picked my nickname because many advisors and investors claim they can predict the future of the (stock) markets and precisely pick the winners with almost absolute certainty. I don't.

I usually do not engage in short-term trading and myopic analysis (quarter by quarter, without looking at the big picture). I like to work with long-term scenarios. My focus is on possible disruptions and growth opportunities in (consumer) technology and related sectors. I also look into value and contrarian ideas as well as emerging technologies, growth stocks worldwide, both on the long and short side as well as the influence of monetary policy on markets.

I am fiercely independent in my investment research. That's why the avatar image of a lone Ninja hopefully fits. Independence guided my investment principles for the past 20+ years:

Pick your targets with patience. Do your OWN diligence.

Never follow the herd blindly: 'Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.'

General Sector Focus: Technology/Internet, Value, Disruptors, Energy/Alt Energy, Entertainment Stocks and Monetary Policy/Geopolitics. Geographical Focus: USA, Western Europe, Japan.

PS: I speak various languages but I am not a native English speaker. I apologize in advance for any typos and grammatical errors.

Summary

  • Back in mid-2013, I predicted sales of Model S & Model X (combined) of up to 100k/yr and Model III (the final name wasn't revealed yet) of up to 150k/yr.
  • It is time to update these sales numbers now that the Model3 is going to be available worldwide in CY2019+.
  • Tesla growth is coming to a halt in CY2020+ because of very intense direct (long-range EVs) competition from large car makers in all price segments in CY2019-2022.
  • Tesla will struggle to match sales of smaller established car brands like Volvo & Polestar easily (selling around 650k cars/yr into similar price brackets with rather small model portfolios atm).
  • Tesla's current market-cap STILL makes no sense compared to its peers. Any recession/downturn will hurt higher-end car sales (Model S, X, Roadster) badly. Tesla also has a weak cash position.

Back in mid-2013 (years before the Model X and later the Model3 car was unveiled) I predicted these annual sales numbers for Tesla's cars in a steady state:

"- Model S and Model X combined (and maybe a new sports car to replace the discontinued Tesla Roadster): 75-100k/year

- Model Car III (estimated for 2017): 100-150k/year"

These sales predictions held up well (especially for Model S and X where Tesla had a ceiling of 100k cars/year for both CY2017 and CY2018) up to now.

It is time to update these numbers for CY2020+ and for a steady state as the backlog for Model3 is getting empty beyond CY2019 (with the exception of a few left-hand drive territories where Model3 sales could start even later, but let's not get lost in details - these are obviously only rough estimates):

- Model S and Model X combined (and a new sports car to replace the discontinued old Tesla Roadster, aka Roadster 2): 85-100k/year

- Model 3: 200-250k/year (drop to around 200k once the Model Y is on sale)

- Model Y (cross-over): 200-300k/year

It is obviously hard to predict sales for Model Y which hasn't been revealed yet - but so where my estimates back in mid-2013 when neither the Model X nor Model3 specs and prices had been public.

Even so, one number will probably raise eyebrows: Why are my Model Y sales estimates so low - after all, the CUV/SUV form factor is getting more and more popular in many countries compared to sedans/hatchbacks in most large car markets?

The Model Y will only arrive in volume in "late 2020" (what Tesla now admits to themselves in conference calls, eg. look up the latest Q4 2018 CC for further details) - by this time, many long-range EVs in SUV and CUV format from large car makers will be available in showrooms.

If we add my sales estimates for CY2020 and beyond it's becoming clear that Tesla will barely catch up with annual sales of a smaller car maker like Volvo (which offers a good comparison because Volvo sells its cars in the same price range and has quite a limited car portfolio compared to other higher-end car makers such as Daimler or BMW. I of course refer only to Volvo, not the entire Chinese Geely Group which has now owned Volvo for a few years, Polestar is the upmarket sister brand for Volvo.)

Here are Volvo's most recent global sales for CY2018:

Volvo Cars set a new global sales record in 2018, breaking the 600,000 sales milestone for the first time ever since the company was founded in 1927. The company’s sales rose 12.4 per cent to 642,253 cars in 2018, compared with the same period the year before. This is the fifth consecutive year of global sales record for Volvo Cars. In 2017, the company sold 571,577 cars.

(Source, emphasis mine)

In addition, Volvo is one the established brands more aggressively pushing electrification, autonomy - and Volvo has a strong backing of a large parent holding company based in China, the largest car and EV market in the world:

Geely Auto Group (...) includes the brands Geely Auto, Lynk & Co, PROTON, and Lotus, Volvo Car Group which includes the brands Volvo Cars and Polestar, Geely New Energy Commercial Vehicle Group which include the brands London Electric Vehicle Company...

(Source)

How come that some analysts (still) predict that Tesla will somehow "disrupt" the car industry while they (rightly) perceive Volvo as a niche high-end car maker in the global passenger car market?

[Both Volvo and Tesla have a car market share well under 1% since close to around 100 million passenger cars will soon be sold per year globally.I am assuming modest growth in the single digits over the coming years, the current number is around 80 to 90 million cars/year depending on definitions what (still) constitutes a passenger car or a small commercial vehicle, LCV.]

Tesla will have a hard time catching up in terms of unit sales with even a small established car brand like Volvo (offering cars in similar brackets with the exception of Tesla's upcoming Roadster) in a steady state in CY2020+.

As I predicted back in early 2016, the Model 3 was Tesla's last "hype bullet". All future Tesla cars will have no competitive moats left in terms of market timing or specs (long range, large batteries, dedicated fast chargers):

  • Charging Infrastructure. All large car makers will have standards-based charging networks based on the CCS 2.0 or Chademo 2.0 at high DC speed in large car markets by CY2020 (eg. "Electrify America/Canada" in North America or "IONITY" or "FastNed" in Europe) with offerings at 100-350kW, well beyond Tesla's current DC charging speeds of 100-130kW.
  • EV competition on the lower end ($20-50k). Most large car makers will offer long-range EVs in sedan or CUV/SUV formats (some even pick-up trucks etc., see Rivian and other new entrants in higher price categories). Tesla won't have offerings without direct competition - that's why my Model Y sales estimates are lower for CY2020+. Even the Model 3 will only have a few months left without direct EV competition from the likes of Mercedes EQA, EQB, Polestar 2, VW ID series, Hyundai/Kia EVs and a lot of other models coming from regional car makers in Asia and Europe. The Model Y on the other hand will even arrive later than directly comparable fully electric SUV/CUV offerings - this is very different from the launch dates and competitive arena when Tesla launched their S and X cars a few years ago.
  • Tesla will also face very direct competition on the high-end (the Model X and S space) for the first time in CY2019+ with new long-range EVs from Hyundai/Kia, BMW, Mercedes, Audi, Porsche and many others - and last but not least the Volvo/Polestar brands discussed in this article. Both the S and the X enjoyed years with no direct competition (defining direct competition as "long-range EVs, starting around $75k, up to $150k fully loaded per car").

Tesla's current (as of early CY 2019) market cap and enterprise value continues to make no sense to me compared to its sector peers.

Back in mid-2013, I made this comparison to BMW, now I made one to Volvo Auto Group.

As I outlined in other articles related to the car sector back in CY2017 already (where I discussed Nissan-Renault-Mitsubishi) the current economic cycle may be coming to an end soon.

In a recession or even a smaller downturn, the cyclical car sector is always hurt very badly - this will hit Tesla with Model3 (the sales tags are still well beyond the promised "$35k" for the Model3 base configuration), but especially with higher-end cars such as the Model S, Model X and future Roadster sales.

Tesla has a weaker cash position than many of its sector peers and much of its current market cap is tied to unlimited (future) growth dreams - it has a lot to lose when the economic (cycle ending) or the "no competition" bubbles pop in CY 2020+.

My current prediction (as I had outlined in CY2017 and CY2018) remains that Tesla's valuation and growth projections will face reality by the end of CY2020 at the latest:

and...

The end of CY2020 is the first date I set for Tesla getting into major trouble because of increasing competition, the (potential end of the) current economic cycle and Tesla growth stalling with no new consumer-oriented product offerings (the Model Y) on sale until CY2020 (maybe that date is even slipping into CY2021 for real global volume production beyond sales in North America).

(Update, Feb 12, 2019 follows below)

Finally, Tesla still mysteriously refuses to raise more capital to bolster its cash cushions or increase the cap-ex:

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.

Additional disclosure: I currently have no long positions in the (car) sector due to macro-economic concerns. I also sold all my other long stocks back in Q2 and Q3 2018 due to similar concerns.

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