Tesla suddenly makes sense ‘sort of’

Here’s a phrase you haven’t heard much about Tesla Inc. lately: It all makes sense now.
By “it,” I mean these events since January 1:
Tesla announced it sold about 91,000 vehicles in the fourth quarter of 2018, more than double the level of the second quarter. That included more than 63,000 Model 3s. The company said capital expenditure in 2019 would be about $2.5 billion, up slightly from last year but kept in check relative to growth expectations.
Tesla issued guidance of 360,000 to 400,000 vehicle deliveries in 2019. Within hours, CEO Elon Musk raised that to 350,000 to 500,000 Model 3s alone. Tesla cut vehicle prices. Then it said it would cut more jobs. The company lauded the benefits of its retail stores in its 10-K filing. About a week later, physical stores were deemed so-last-week compared to an online-only strategy. Then a swath of those doomed physical stores was pardoned. Tesla surprised by launching a $35,000 version of the Model 3. Tesla surprised by teasing a Model-3 like Model Y. The company settled a maturing $920 million convertible bond with cash.
The key turning these particular tumblers into place came in the form of Tesla’s first-quarter production and delivery figures. These dropped after the market closed. And, to be fair, these were the sort of sales figures that could use some exquisite timing and low lighting:
Model 3 sales were up year-over-year, of course, given deliveries had barely gotten going in early 2018. But they were down by a fifth from the prior quarter. Even if one were to assume all of the 10,600 vehicles in-transit at quarter-end were Model 3s and include them, the figure would still be lower. Meanwhile, sales of the older Models S and X plunged by more than half compared with the prior quarter and almost half from a year earlier.
This is a shocking set of numbers. The Model 3 is Tesla’s supposed growth engine; the Models S and X are the higher-priced profit-margin pools. To have both shrink at once, and by this magnitude, should shake confidence in Tesla’s growth story even among committed bulls. This is especially true considering demand for higher-priced variants of the Model 3 were clearly pulled forward into the second half of 2018 when Tesla managed to eke out two consecutive profitable quarters.
Tesla reaffirmed sales guidance of 360,000 to 400,000 vehicles this year, as a means of shoring up confidence. But this implies deliveries must average 99,000 to 112,000 in each of the other three quarters.
Moreover, Tesla pointed out Europe and China posed challenges around deliveries. That may have been intended to show this was a temporary thing. But coming from a firm that has experienced both production and delivery “hell” in the past year or so, it rather raises the question as to how many hellish circles must be traversed.
—Bloomberg

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker