Tesla Overpromises And Underdelivers, Again

Tesla announced that it delivered 12,420 Model S’ and 2,400 Model X’s in the March quarter. The 14,820 total falls short of the 16,000 guidance that the company gave on February 10 when it announced its December quarter results. The stock was down over $10 to $236.50 in the after market post the press release but that is essentially what it was up on Monday. I still believe that Tesla’s shares are set up for a buy the rumor (Model 3), sell the news scenario.

Model S’ deliveries were 24% higher than a year ago which is a significantly lower growth rate than the 76% in the December quarter, 49% in the September 2015 quarter, 52% in the June quarter and 56% in the March quarter. However in the press release Tesla said that Model S first quarter orders were 45% higher than a year ago so it is keeping its full year guidance of 80,000 to 90,000 vehicles. However Tesla had a push on in February with lease incentives so that could be what generated the strong Model S orders. If Model S demand is waning it may not show up until the second half of this year.

Elon Musk, chairman and chief executive officer of Tesla Motors. Photographer: David Paul Morris/Bloomberg

Management must have known hitting guidance had lower odds

Tesla wrote in its press release “The Q1 delivery count was impacted by severe Model X supplier parts shortages in January and February that lasted much longer than initially expected.” What I find concerning about this statement is that management gave its March quarter guidance on February 10, pretty far into the quarter and would have been in full knowledge of the parts problems.

Tesla owns up to the issues in the press release. It said “The root causes of the parts shortages were: Tesla’s hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house.”

I’m sure they had thought this through and had all sorts of plans to get the parts they needed and manufacture the cars. But it is troubling since this repeats the pattern of Tesla over promising and under delivering when it knew it had major problems. Even though there were only shortages of half a dozen parts besides needing them once you get them you just can’t quickly finish building a car.

In some ways it means little since it is still at least two years away from scaling production and the company says in the press release “Tesla is addressing all three root causes to ensure that these mistakes are not repeated with the Model 3 launch.” However it makes you wonder that even though the Model 3 is supposed to be easier to build can the company actually ramp its production to 10 times what the Model S and X are supposed to be.

Also the first mistake was “adding far too much new technology to the Model X in version 1”. Does this mean that the company will have to scale back what it brings to market in the Model 3’s first version? If it does hold back will it negatively impact the orders it has taken?

While it probably won’t impact the almost 300,000 Model 3 orders at least in the near term it raises the risk that its manufacturing ramp will lengthen and that 2018 production will be lower than expected.

Tesla Motors unveils the new lower-priced Model 3 sedan. (AP Photo/Justin Pritchard)

The ramp to hit 2016’s full year delivery guidance just got steeper

The stock hit its recent low on February 10 the day that Tesla announced its fourth quarter results. It fell short of expectations when it announced that it had sold a total of 17,478 vehicles of which only 206 were Model X’s, but the shares started their 60% increase the next day partially based on positive full year delivery guidance of 80,000 to 90,000 vehicles. I wrote after the quarter was announced that the full year is doable but that it is a steep ramp with only 16,000 in the first quarter. The ramp just got steeper.

It is probably too early for Tesla to lower its full year guidance but this does feel remarkably similar to last year when the company started off at 55,000 vehicles to be delivered then dropped it to 50,000 to 55,000 after the June quarter’s results and then 50,000 to 52,000 after the September quarter was announced (actual sales wound by being 50,658). Tesla will still sell a lot of Model S’ and X’s this year but this is a heads up that the results will probably be at the low-end if not under 80,000.

Positive breadcrumbs

It seems that every time Tesla announces a shortfall it offers up some positive information to soften the blow. In yesterday’s press release besides reiterating full year delivery guidance it added that the Model X build rate was up to 750 per week and that Model S orders in the quarter were 45% higher than a year ago. At some point in time investors will care more about results than promises that fall short. While the company has said that it doesn’t need to raise money now is the time to do it since it may want to try and increase production of the Model 3.

Positive breadcrumbs

It seems that every time Tesla announces a shortfall it offers up some positive information to soften the blow. In yesterday’s press release besides reiterating full year delivery guidance it added that the Model X build rate was up to 750 per week and that Model S orders in the quarter were 45% higher than a year ago. At some point in time investors will care more about results than promises that fall short. While the company has said that it doesn’t need to raise money now is the time to do it since it may want to try and increase production of the Model 3.

Positive breadcrumbs

It seems that every time Tesla announces a shortfall it offers up some positive information to soften the blow. In yesterday’s press release besides reiterating full year delivery guidance it added that the Model X build rate was up to 750 per week and that Model S orders in the quarter were 45% higher than a year ago. At some point in time investors will care more about results than promises that fall short. While the company has said that it doesn’t need to raise money now is the time to do it since it may want to try and increase production of the Model 3.

Please Login on Curatigo to Participate in Discussion!