What the real story with Tesla's demand problem?

Our good friend Sean Mitchell has been on a bit of a hiatus from YouTube as of late. Following his exciting and information-packed trip to the Detroit area, he had to shift his focus to his day job in real estate, which is most successful during the summer months.

No worries, however. If you follow Mitchell on Twitter, you probably know that he's still engaged in All Things EV. In fact, he recently wrote a fascinating Op-Ed that was published on Teslarati's website, and now, he has just released a video about Tesla and its "reported" demand problem.

Does Tesla even have a demand problem? While some would say the numbers don't suggest so, others strongly disagree. Which side people are on seems to come down to their stock interests and whether or not they are pro- or anti-Tesla. However, regardless of any of the agenda-driven press or social media bantering, this is a really fair question.

As usual, Mitchell has done his homework and provides us with an objective look at Tesla demand. Clearly, the issue is not with the Model 3, but Model S and Model X sales are definitely down. Still, overall global numbers for all models as a whole were record-breaking in Q2 2019, and overall U.S. deliveries are looking good, despite the reduction in the federal EV tax credit.

In order for Tesla to meet its goal of delivering at least 360,000 vehicles in 2019, it needs to sell over 100,000 cars in each of the next two quarters. Can the Silicon Valley automaker pull it off?

Video Description via Sean Mitchell (AllThingsEV.info) on YouTube:

Tesla’s demand problem

In this video, I’ll address whether I think Tesla has a demand problem.

Tesla recently completed sales of its vehicles in Q2 2019.

To many people’s delight, they exceeded mosts expectations and were right in line with where they stated they would be in their Q1 2019 letter.

Still, critics are stating Tesla still has a demand problem but what does the data say?

Model S/X

Production: 14,517
Deliveries: 17,650

Model 3

Production: 72,531
Deliveries: 77,550

Total

Production: 87,048
Deliveries: 95,200


There are three ways that I look at Tesla’s growth: QoQ, YoY, and seasonal. Let’s drill down into each of these.

QoQ

S/X: +46%
3: +52%

YoY

S/X: -21%
3: +320%

Seasonal

Do sales consistently dip around the same time every month, year, quarter.

Aside from drop YoY drop in S/X sales Q2 was a very nice quarter for sales.

So, where does this ‘no demand’ claim come from?

It appears it came from the huge MoM drop from Q4 2018 to Q1 2019.

S/X: -56%
3: -20%

Critics associated the huge drop with the $7,500 US federal tax credit cutting in half at the end of 2018. They surmised that that only reason people were buying Teslas were because of the tax credit - completely ignoring all of the other selling points.

Though the tax credit may have played a significant role in pulling sales from 2019 into the last month of 2018, Tesla also made some significant changes to S/X at the beginning of this year that could have significantly impacted sales.

The primary change resulted in them removing the least expensive 75 kWh battery pack and only offering the higher-priced 100 kWh options in early January. Later on, in the quarter they eventually reintroduced a smaller range S/X in the new vernacular similar to Model 3, Standard Range and Long Range. These changes caused a drop in average sales per quarter from ~25,000 units in 2018 to ~15,000 units in 2019.

This change had a pretty significant impact on global sales.

Despite Elon Musk’s most recent reaffirmation that there are no plans to do a “refreshed” S/X, I do think it makes sense to continue to bring them more in line with Model 3’s feature suite - a horizontal center display, updated HVAV, and battery architecture to facilitate 250 kW charging speeds.

Model 3 growth, on the other hand, follows a different trend.

To get back to the original question, does Tesla have a demand issue? The Model 3 - absolutely not. Model 3 sales continue to grow and they’ve only just started delivering vehicles outside of North America. The Model S/X - it appears the data indicates there could be a demand problem. It could also indicate that 15,000 units per quarter is the new norm now that a lower-priced Tesla is available.

So far Tesla has sold slightly more than 158,000 vehicles this year. If Tesla is to reach their low-end goal of 360,000, they need to sell an average of 100,900 vehicles in Q3 and Q4. 5,000 more vehicles per quarter than Q2, something that appears to be within reach.

The question is: Are Tesla’s current Model S, X, and 3 offerings convincing enough to consumers to sell 360,000 vehicles in 2019?