JP Morgan Cuts Tesla Model 3 Q4 Delivery Target In Half

4 weeks ago by Steven Loveday 50

Tesla Model 3

Tesla Model 3

Tesla Model 3 missed production targets, among other concerns, have some Wall Street analysts taking notice.

Tesla shares are still up 65 percent this year and only traded down 0.9 percent at the end of last week, and 1.1 percent down for the week as a whole, but JP Morgan is beginning to change its tune. Previously, the firm has its price targets for Tesla shares at $200, and now that has been dropped to $195, which is 45 percent below the stock’s recent closing price.

JP Morgan predicts that the Silicon Valley electric carmaker will continue to have Model 3 production issues following third-quarter results. The automaker was able to deliver 26,150 electric vehicles overall between July and September (which is actually above Wall Street analysts’ projection of 25,680). However, the analysts’ estimates included 1,260 Model 3 vehicles. Tesla only delivered 220 and produced 260 after guiding to production of 1,630+. JP Morgan analyst, Ryan Brinkman, shared in a note to clients:

Tesla Model 3

Elon Musk with one of the first production Tesla Model 3 vehicles at the initial handover event.

“deliveries of Model 3 vehicles significantly underwhelmed relative to both management guidance and our own delivery expectations. Management cited production bottlenecks as the primary driver of the lower than expected deliveries of the newly launched Model 3 vehicles, furthering our concerns that significant execution risks exist associated with the roll-out of the Model 3 that seem insufficiently reflected in current valuation.”

Additionally, JP Morgan has cut its fourth-quarter Tesla Model 3 delivery estimate in half. Earlier, the firm had projected 30,000 deliveries in the fourth quarter of 2017. Now, it’s forecasting 15,000 (which still may be quite steep with all things considered), perhaps also feeling the pressure of other firm’s lower numbers, Oppenheimer recently forecast Model 3 deliveries for 2017 combined at 3,005.

Further, the firm is concerned about Model 3 profitability due to the current situation and timeline. Brinkman noted:

“While the difficulties in ramping the vehicle Model 3 could very well prove temporary, we do wonder if they could hint at structurally lower profitability for the vehicle on a go-forward basis (for example if the vehicle were not as easy or simple to manufacture as intended), prompting our concerns about margin.

We worry that if the vehicle proves structurally more expensive to manufacture, that in order to preserve the targeted gross margin, Tesla may need to increase the price of the vehicle to consumers, with negative implications for demand.”

Source: CNBC

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50 responses to "JP Morgan Cuts Tesla Model 3 Q4 Delivery Target In Half"

  1. Eco says:

    Since I’m a Model 3 reservation holder I’m dismayed by the delayed production ramp-up but at least part of that delay is due to Tesla’s focus on Hurricane relief which should be applauded and recognized in their stock valuation.

    1. Dav8or says:

      Is that what it supposedly is?? Working on a PR stunt is keeping Model 3 production behind? I think there is a bit more to these delays.

      1. Michael Will says:

        There is, but it doesnt really matter. They work through the issues and it will take them less time than for Model S and Model X because of the Model 3 having manufacturing simplicity as core of the design. I test drove the car three weeks ago and have no doubt that it is an absolute game changer and that they will produce them in larger numbers and sell every single one of them. Well worth the wait, just like it was for Model S and Model X. We have been driving a Model X 90D since end of May 2016, we had hoped to have it earlier, but really I have 0 regrets waiting for it. We put 31k miles on it since we got it, over the air updates improved and added features, i.e. there used to be driver profiles that store your mirror and seat position and you had to select the one you want from a dropdown on the top of the screen when you got into the car. A few months after we got the car, an over the air update allowed tieing it to the key fob, and now when I approach the car and it unlocks, the seat already slides into my preferred position, and so do the side mirrors. Every day we love driving this car, and I have no doubt Model 3 will be as amazing. JMP is just like GS catering to their deep pocketed customers distorting the view of teslas potential. But we that actually own the products, and enjoy them every day, know better.

        1. Four Electrics says:

          How does this screed relate to the story above? Do you believe JP’s new production targets will prove accurate, and if not, why?

          1. ffbj says:

            For one they don’t know S*** from Shinola.
            https://www.youtube.com/watch?v=YTHL0y6xvLE

          2. Michael Will says:

            I don’t know nor care (ok that part is a lie, cant wait to get mine) what the near term model 3 deliveries are, as long as tesla stays on the path they are on. I was referring to JM’s ‘downgrade’ of their shorter wishlist stock price.

        2. Nick says:

          Hear, hear!

    2. Mikael says:

      No, that has absolutely nothing to do with it.

      And the delay is natural. It took 7 months for both the Model S and Model X to start reaching the levels they are at today. For the Model 3 that would mean January.

      So if they can’t do 7-10k per month by then it’s time to start worrying.

      1. Will says:

        SO company that never produce 20k a month vehicle of any of its models is going to produce 20k in Feb or March or whenever for one model, 🤔gotcha🙄

    3. WadeTyhon says:

      Hurricane relief efforts are great. And Tesla is awesome.

      But hundreds of other companies are providing hurricane assistance with no major delays in production of their products. 😛

      Musk might personally be more focused on relief efforts. But that is not causing any delays with the Model 3.

    4. God/Bacardi says:

      You’re essentially saying those who were hired to work automobile production lines were pulled off the line to assist with Powerpacks in the P.R.?

      1. Dan says:

        Yes. Half of those workers were ballistically delivered to PR using SpaceX. The rest are still boring their way across the country. 😀

    5. MotoEV says:

      Time to put our critical thinking cap on.

      I suspect JPM is changing their guidance because they did not receive any supporting data to rationalize how talking to Puerto Rico about power solutions would impact the Model 3 rollout.

      Are batteries destined for Model 3’s being rerouted to Powerwalls?

      I have a Model 3 reservation but when 1+1 stops equally 2 from Mr. Musk, we should all be concerned about a credibility gap.

      1. Pushmi-Pullyu says:

        “I suspect JPM is changing their guidance because they did not receive any supporting data to rationalize how talking to Puerto Rico about power solutions would impact the Model 3 rollout.”

        I can’t tell if you’re joking or not. If you are, it needs a smiley because it looks like you’re serious.

        Just because the OP speculated that hurricane relief is causing a delay in Tesla Model 3 production, based on no evidence whatsoever and contrary to all common sense, it doesn’t mean that groundless suggestion deserves any consideration by JP Morgan or anybody else.

        It was reported in an Electrek article (link below) that the delays were due to problems with battery pack welds, and “ground terminal bolts”.

        I seem to recall Tesla has said that the BEV semi tractor debut has been delayed due to hurricane relief. That’s understandable. If you’re a company like Tesla, you don’t send your “A” team to work on a side project like hurricane relief; the A team should be concentrating on fixing problems with the Model 3 production line. It’s the “B” teams which are working on side projects, such as the BEV semi tractor, who should be pulled off and sent to handle something like hurricane relief.

        Sadly, critical thinking before commenting again seems to be lacking.

        https://electrek.co/2017/09/29/tesla-model-3-production-ramp-up-manufacturing-problems/

  2. Get Real says:

    Since your reading comprehension is not good 4E I will post the second sentence of Micheal Will:

    “They work through the issues and it will take them less time than for Model S and Model X because of the Model 3 having manufacturing simplicity as core of the design.”

    While serial anti-Tesla trolls like yourself can’t see the forest for the trees, Tesla is making steady progress here and as Micheal says the Model 3 will be a “game changer”.

    1. ClarksonCote says:

      If there’s anyone that can’t see the forest for the trees, it’s Elon Musk. He consistently is way over optimistic on production goals, every time he is proven wrong, and yet every time people believe he will be right this time.

      Thats the definition of insanity.

      On the bright side, these kinds of issues will hopefully be short term and, in the grand scheme of things, hopefully a small ripple in an otherwise great revolution of vehicle technology from Tesla.

      But that doesn’t excuse Musk for being consistently far out of touch with his own company’s shortcomings.

      1. Bill Howland says:

        “Defitinition of insanity”.

        Anyone who can personally consistently make more money for himself than any other automotive CEO (currently 15X anyone else), is clearly not mentally challenged.

        His views of life in general, and Tesla in particular work exceptionally well in a Bull Market.

        Mr. Musk has proven the last sentence repeatedly.

        I always considered Mr. Steve Jobs a successful business man, not withstanding what I thought of the man personally.

        Mr. Musk, while possibly not equaling Mr. Jobs fortune, is obviously right up there on the success ladder.

        1. Bill Howland says:

          “Definition of Insanity”.

          Not sure if you were talking about Mr. Musk personally, or the people here.

          Humm, well, in the “Madness of Crowds”, it was stated people go irrational en masse, but come to their senses one at a time, in silence.

          1. ClarksonCote says:

            The definition of insanity is doing/saying the same thing over and over again and expecting different results.

            Clearly Musk is not insane. But the continuous proclamation that they’ll be on schedule with lofty goals despite never meeting said goals is a bit insane. And everyone that believes him each time is, in that belief, acting kind of insane.

            As to having making lots of money automatically implying you’re not insane, there’s a lot of democrats that will be upset about that with the example of Trump! 😉

            But to go back to my original point, I’m not calling Musk insane, but the notion of all the fans claiming he’d be on time “this time” with the Model 3 as opposed to how it was with the Model S and Model X, despite a shorter development timeline and even higher volumes, is a bit insane! 🙂

            1. Bill Howland says:

              Well, that’s the old Bromide that Einstein used to proffer.

              1. ClarksonCote says:

                🙂

      2. Pushmi-Pullyu says:

        “But that doesn’t excuse Musk for being consistently far out of touch with his own company’s shortcomings.”

        Alternatively, perhaps Mr. Musk has discovered that setting impossible goals helps motivate his team members and employees to work harder. Even when he knows such goals cannot be reached, perhaps he has discovered it’s a way to increase productivity beyond what he would have gotten with more realistic goals. Perhaps he’s also discovered it helps motivate suppliers to get him the parts he needs without delays.

        I’m not saying that’s a good business strategy; impossible goals lead to burned out workers, poor morale, and getting people truly torqued off at him.

        But it’s hard to argue with success!

        A man’s reach should exceed his grasp. — Robert Browning

        Perhaps Elon thinks a company’s reach should do likewise. 🙂

        1. Will says:

          Sounds communist too me. Where thier 5 year plans were out of reach and lost productivity and money in the process while lying and cooking the books for thier people

    2. Tom says:

      His question is accurate and on target. Your response is not.

  3. FISHEV says:

    “Tesla may need to increase the price of the vehicle to consumers, with negative implications for demand.”

    Most of us with Model 3 reservations are in it for the AWD, air suspension, winter package, 300 mile battery EV which is a $70K car. At that price, the Model 3 is likely profitable. Tesla is already only making loaded Model 3’s and will likely continue that into 2018 as the AWD and air suspension/towing options become available.

    Bottom line is that increase in price is likely not needed and even a 15% increase at the base ($40K base vs. $35K) will likely not affect sales.

    Issues are strictly “mechanical” in building the car in volume.

    1. Tech_guy says:

      Agree that ASP will be much higher than $35k. I would assume a $60k M3 would be profitable, but the same argument should apply to MX and MS. Tesla has yet to convince me about those profit margins.

      It will be quite the show to find out how elastic peoples budgets / M3 sales are.

    2. ffbj says:

      As per usual you have a point, and a good one.

    3. pjwood1 says:

      70K may be a conceivable asking price, but not where such a Model 3 costs. We don’t unpack cost much. I can’t see, for instance, how electric motors are more expensive than internal combustion bits. Volume matters, and all that, but batteries remain the big story. 20k-30k Model S battery costs are history, for Tesla. $100-150/KWh cell costs may currently explain $8k-12k to Model 3 80KWh batteries. These are part of an $8k option. So, I think Tesla is being shrewd in premium pricing items that genuinely cost.

      The inflection point these analysts want to nail is when gas-engine & transmission costs, less falling service costs, match electric drivetrains. That’s an entirely different proposition for the consumer, whose future costs are already a selling point.

      All this reminds me of how Netflix recently told Wall Street “we have to spend more on programming” to keep growing. I love a renaissance, when it comes to providing customers more for their money. I love when Wall Street, or shareholders, can’t drive product into a nothing-burger. Battery size matters.

    4. Jason says:

      Not everyone wants top of the line model. I’d settle for the base model, maybe with the bigger battery for range but not critical as 210mi is plenty for my needs.

  4. Bill Howland says:

    Note to the editors:

    When I use a MODERN browser (Firefox), I get a
    suspicious “CRITICAL FIREFOX UPDATE”, AND ALSO a “APDIVO CANCER AD” that is not well behaved since it constantly moves the page over to itself.

    I continue reading IEVs using IE 7, since that is so old these days that the misbehaving ads are inoperative.

    1. Jay Cole says:

      Thanks Bill,

      We had another report just now of this suspicious ad unit…working to isolate and remove now.

      Apprec the heads-up otherwise we would not have know, it appears to be regionally targeted, so we can’t get it to ‘appear’ for us.

      1. ffbj says:

        How does that happen? Just wondering, so anybody put up an ad and you don’t even know it’s there?

        1. Jay Cole says:

          About ~20% of our ad rotation is direct, so obviously we can control that (mostly OEMs), however the bulk is handled by programmatic ad providers that auction the space.

          (Google is really good at provided this service, and owns about half of all the ad inventory on the net, while some other companies are very good as well)

          Anyway, all websites use programmatic ads to fill in the open inventory they can’t fill directly…before you do this, you basically decide what kinds of ads you want, what is the content and the parameters, and if these ads will be ‘static’, or will play video, sounds, ‘pop’ up or ‘pop under’, have a cover page when a page opens, etc.

          For IEV, we have a ‘only static’ policy (cause we hate all that other stuff when we surf the web), so the ads should just be unobtrusive images – ie) normal ads.

          This direction is given to the programmatic ad companies, and then they ‘fill’ the ads with this criteria in mind…however sometimes people looking to place ads will work around the system, state their ad is a certain way, but the code actually is not. Many times the programmatic ad companies will suss these issues out, but sometimes they get through…in these cases we isolate the ad and get it removed.

          It is actually a fairly rare occurrence (tens of millions of ad impressions can be served each month), but still super annoying nonetheless for those who encounter them, and for us running them down.

    2. George T Rocchio says:

      Bill, I don’t know if you can help me here. Until October 9 I was a receiver of Inside EVs on my e-mail. It stopped after that and I am at a loss o get it back. My address is georocchio@cox.net. Can you help?

  5. God/Bacardi says:

    The article mentions possibly raising the price, MSRP, not way, yet there are other tactics that would have the same affect…
    Raise the destination fee or other options, quietly eliminate RWD and/or small battery configurations for NEW reservations, etc…

    1. Pushmi-Pullyu says:

      Raising the base price of the TM3 would be a serious public relations disaster for Tesla, and the company must know this.

      If the TM3 proves more expensive to produce, my guess is that Tesla will find some other solution. Removing content would, I think, be preferable to increasing an MSRP which has been repeated so many times that it is seen as a real promise by Tesla.

      Yes, Tesla did raise the price on its first car, the Roadster, by 10% shortly after deliveries started. But the Roadster was aimed at a very different market, a much more exclusive one, than the TM3.

      And unlike all those Tesla haters and bashers who keep whining that Tesla is going to raise the price, Tesla isn’t going to ignore that very important difference.

  6. JL says:

    Question, when does an overinflated estimate tip over from an over optimistic forecast to a deceptive statement used to deceive investors or the public (valuation greater than Ford)? Only Elon knows what his original intent was. Tip, always follow the money.

    1. ffbj says:

      Answer:
      Speculative, your honor, leading the witness.
      Tip: Don’t listen to anything that guy has to say.

    2. BenG says:

      That and be sure to listen critically and carefully to what is being said. Elon did give the over-optimistic estimates, but at the same time he talked about how any single part out of thousands could hold up the ramp and that the goals he talked about were ‘aspirational’ and the actual production would inevitably lag behind.

      So anyone who relied on Tesla actually hitting their ‘aspirational’ goals was pre-warned that failure was likely.

    3. Pushmi-Pullyu says:

      “Question, when does an overinflated estimate tip over from an over optimistic forecast to a deceptive statement used to deceive investors or the public (valuation greater than Ford)?”

      Question, when does an expression of concern about Tesla Inc’s business tip over from a genuine concern from someone who hopes Tesla will succeed, to just another “concern troll” post from someone hoping (and betting in the stock market) that Tesla will fail?

      Tesla does not set the buying and selling price of its own stock; the market determines that. There is no nefarious hidden conspiracy at Tesla to make its market cap bigger than Ford’s!

      Furthermore, Elon Musk has been quoted at least two or three times saying that Tesla’s stock price appears to be inflated.

  7. Pushmi-Pullyu says:

    “While the difficulties in ramping the vehicle Model 3 could very well prove temporary, we do wonder if they could hint at structurally lower profitability for the vehicle on a go-forward basis (for example if the vehicle were not as easy or simple to manufacture as intended), prompting our concerns about margin.”

    It does seem prudent for investors to be concerned about such things. However, the one report we have seen which appears plausible about the cause of the delays — welds on the battery pack and bolt heads — seem to be things which can be fixed without having a significant impact on the unit cost of the Model 3.

    I’m more concerned with the “cost of money” over time. Tesla has aimed at a certain ramping up speed, and has tailored all its plans for that speed. The rate at which Gigafactory 1 is being built out, the rate at which Tesla is hiring new employees for the Model 3 production line(s), and the rate at which they are (or already have) installed new equipment for that line(s), may result in a lot of unneeded expense as machines sit around idle with little or nothing to do, if Model 3 production continues to falter. The money Tesla borrowed for capital expenditures on these expansions will require significant interest payments, which it seems are being largely wasted.

    I’ve seen it argued that in the long run, this is not important. In fact, I think you can see that argument in at least one comment above. But at least over the short term, the slippage of production targets by months certainly is going to have an impact on Tesla’s balance sheet. That much is certain. What isn’t at all clear, at least not to me, is just how much impact these delays are going to have on Tesla’s short-term profit-and-loss.

    1. Murrysville EV says:

      One impact will be the exodus of some – or many – reservation holders.

      I used to think the reservation holders would mostly stay, unless their personal life circumstances forced them to withdraw.

      But I – for one – am having serious doubts about spending upwards of $50k on a car whose release has been met with so much drama, and which I’m not sure Tesla can adequately support once it’s in the wild.

      Yes, the Model 3 is beautiful, but for a lot less money and drama I can go buy a Bolt with confidence that Chevy will stand behind it.

      Even the Supercharger network doesn’t have as much appeal for me as it used to; I still have ICE cars to take long trips in. At the moment, the Model 3 isn’t equipped for towing, yet it’s been well documented that towing wipes out ~50% of an EV’s range (or more), which suddenly turns a 300-mile trip in the Model 3 into a full day’s drive. So if I have to use an ICE to make such a trip more practical, why do I need the Supercharger network at all? And therefore, why do I need a Tesla?

      1. Will says:

        👏👏👏👍 you seeing the light.

      2. G2 says:

        *You* are better off in a gas car and giving your reservation to someone who ‘gets it’.

  8. Kdawg says:

    So when does the first non-employee get a Model 3? Wasn’t it supposed to be by the end of this month?

    1. Will says:

      October but I see FEb 18 as delivers if 3

  9. bro1999 says:

    Elon called it properly production hell instead of production purgatory for a reason

  10. Jason says:

    I’m sure Tesla would be very happy to have more demand than supply, who wouldn’t? Biggest risk is a Nissan situation of more supply than demand, then you have a problem because you invested too much and can’t recoup it. I don’t think Tesla has to worry yet as they will sell every vehicle they can make.
    Whether price will change immediately or later, prices always increase, so that is no surprise with and product (and price can effectively increase based on loss of options. For example for products that stay the same price but weight/volume decreases).

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