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Are the Worries about Tesla’s Model 3 Demand Warranted?

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Tesla’s Model Y unveiling event

In the previous part of this series, we looked at Berkshire Hathaway (BRK-B) vice chairman, Charlie Munger’s, recent comment related about Tesla (TSLA) CEO Elon Musk. On February 28, Tesla launched its $35,000 version of the Model 3 with a 220-mile driving range per charge, which it first announced in March 2016. A couple of days after launching the lower-priced Model 3, Musk announced that the company will unveil its lower-priced SUV, the Model Y, on March 14.

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Tesla’s Model 3 demand

According to InsideEVs’ estimates, Tesla Model 3 US sales rose 181% year-over-year in January and February combined to 12,250 units. However, Model 3 sales estimates for the first two months of 2019 reflected a 72.1% drop from the estimates for the previous two months combined. The data suggest that, in November and December 2018 combined, Tesla sold about 43,900 units of Model 3 in the US market.

According to a recent CNBC report, RBC analyst Joseph Spak believes “there has been a fall- off in U.S. demand and softer than expected demand in Europe/China.” The analyst thinks weakening Model 3 demand could be one reason why Tesla announced the Model Y unveiling event shortly after launching its $35,000 version of the Model 3.

These estimates by InsideEVs could differ from the actual US sales for the Tesla Model 3. Also, in its fourth-quarter earnings report, Tesla said it expects Model 3 North American deliveries to go down in the first quarter of 2019 as Tesla starts delivering vehicles in the Chinese and European markets. Nonetheless, Tesla guided for its first-quarter Model 3 production to increase sequentially. So, just looking at the Model 3’s US sales estimates in the first two months of 2019, I wouldn’t conclude that Tesla is facing Model 3 demand issues.

Tesla started the first deliveries of its Model 3 in February 2019, which should help it compete better with other Chinese automakers including NIO (NIO). Other mainstream auto companies (IWF) General Motors (GM), Ford (F), Toyota (TM), and Honda (HMC) also have increased their focus on the Chinese market over the last couple of years. Now let’s take a look at Tesla’s valuation multiples.

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