Why Tesla Seems to Be Struggling with Q3 Deliveries

  • Tesla reported a sharp rise in its second-quarter deliveries. During its Q2 2019 earnings call, the company also expressed optimism over its Q3 deliveries.
  • However, looking at some of the information available, achieving its quarterly and yearly delivery targets might be somewhat tough for Tesla. Although the company has been posting losses, Tesla bulls have found solace in its strong top-line and shipment growth.

Tesla’s Q3 deliveries

Tesla (TSLA) delivered a record 95,200 vehicles in the second quarter of 2019. The company’s Q2 deliveries beat the previous record set in the fourth quarter of 2018. However, TSLA’s deliveries tapered down in the first quarter of 2019.

We see an uncanny similarity between Tesla’s record deliveries in Q4 2018 and Q2 2019, as both quarters coincided with the gradual withdrawal of the federal tax credit. Tesla cars were eligible for a $7,500 tax credit last year, which fell to $3,750 on January 1, 2019. On July 1, the tax credit decreased further to $1,875.

Starting in 2020, Tesla cars won’t be eligible for the tax credit. The record deliveries in Q4 2018 and Q2 2019 were boosted by the carry forward demand by Tesla car buyers taking advantage of the higher tax credit.

Tesla sounded optimistic

After its record Q2 deliveries, the company sounded optimistic over third-quarter deliveries as well. The company’s July 2 statement noted that it is “well positioned to continue growing total production and deliveries in Q3.”

TSLA’s second-quarter earnings call echoed these views, and it ruled out much of an impact from the lower federal tax credit. The company maintained its 2019 delivery guidance of 360,000–400,000 vehicles.

In our view—and even TSLA bulls would agree—the company has often been a bit too optimistic with its projections. We believe that achieving its Q3 and 2019 delivery guidance could be a tough task. Let’s take a closer look.

Free supercharging for Model X/S

Last month, TSLA brought back free unlimited supercharging for new Model S and Model X cars. This was a limited period offer, which the markets considered in conjunction with the company’s falling Model S/X sales.

While the company’s consolidated deliveries rose sharply in the second quarter, its Model S/X sales fell year-over-year. During the company’s second-quarter earnings call, Tesla CEO Elon Musk admitted to some cannibalization on the Model S/X from its Model 3 sales.

However, the positive aspect of Tesla’s Q2 delivery report was the surge in its Model 3 sales. TSLA sees the Model 3 and the upcoming Model Y as its growth drivers in the long term.

Free supercharging for Model 3

Tesla might also consider adding free supercharging to spice up its Model 3 sales. Electrek reported that “Tesla has authorized its sales staff to offer two years of free Supercharging for new Model 3 orders that get delivered by the end of the month.”

Although Tesla often says that it is demand-constrained, the free supercharging offer for Model 3 cars doesn’t corroborate that position.

Are Tesla Model 3 sales stalling in the United States?

Earlier this month, InsideEVs reported that according to its estimates, Tesla delivered 13,150 Model 3 cars in the United States in August. In comparison, it delivered 13,450 cars in July and 21,225 cars in June.

As we previously noted, Tesla’s US deliveries spiked in June as customers jumped in to take advantage of the higher tax credit. Looking at the Model 3 sales estimates and Tesla’s free supercharging offers, it wouldn’t be an unfair assessment that TSLA might be facing difficulty in achieving its ambitious delivery targets.

Tesla bulls versus bears

While TSLA has struggled to make sustainable profits, bulls have pointed to the company’s strong top-line growth and the growing popularity of its vehicles—even its rivals appreciate its achievements.

However, if demand for the Model 3 has plateaued in the United States, that isn’t good news for Tesla bulls. While Tesla is expanding into several international markets, and China’s Gigafactory should also be operational by the end of this year, the US market is still crucial for the company.