Being a Tesla shareholder in recent years has been one of those sensations that usually has one reaching for the travel sickness tablets, and yesterday’s announcement, that the company missed its delivery target for its cars is likely to see the shares open sharply lower when US markets open later.
The company said it had delivered 63,000 cars in Q1, a big drop from Q4 and missing estimates by 13,000, even though it produced 77,100 cars during the period.
With the shares set to open sharply lower investors need to weigh up whether the slowdown is down to a fall in demand, or a function of Tesla’s inability to meet that demand.
At first glance the problem the company appears to have is one of logistics with 10,600 cars in transit due to only having one factory, located in the San Francisco area. The company does have plans to build a factory in China to meet growing demand there, but that goal still seems some way off.
Despite the drop in deliveries Tesla insisted that it will still meet its annual target of between 360k and 400k cars for 2019, which is still a significant improvement on 2018. It’s also a big ask given the miss in this quarter, nonetheless Q1 deliveries were still well over double from the same quarter last year, and Model 3 deliveries did come in above expectations.
Source: CMC Markets
That being said it still remains a tall order to hit that total target as Tesla would have to deliver at least 100k cars each quarter, for the next three quarters. This would be a record, and well above the previous record of over 90k cars in Q4 last year.
Separately to these numbers, the reaffirmation of guidance of between 360k to 400k cars for 2019 poses a bit of a problem for CEO Elon Musk given that earlier this year he tweeted that Tesla would build 500k cars in 2019.
The reason for this is, that as part of a 2018 $40m settlement with the Securities and Exchange Commission (SEC) Musk agreed to be bound by rules that stated that any tweets about the company had to be pre-approved if there was any suggestion that they were material to the performance of the company.
This settlement came about as a result of claims that Musk made in 2018 that he had secured funding to take the company private at $420 a share, a claim that ultimately turned out to be untrue.
If the SEC finds Musk in contempt they could levy sanctions either against Musk or the company itself. These could take the form of a fine, or even a temporary ban on Musk from running the company.
As such Tesla’s biggest problem remains the trigger happy nature of Elon Musk’s mouth rather than its abilities to deliver on its production targets. How long will it be before shareholders tire of being on this particular roller coaster.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
