Tesla stock was getting hammered after weaker-than-expected third-quarter delivery numbers. Wall Street seems to believe the shortfall was due to logistics. That isn’t what investors are worried about, however. They’re worried about demand.
Tesla reported Sunday third-quarter deliveries and production of 343,830 and 365,923 units, respectively. Wall Street was looking for about 358,000 units to be delivered.
The delivery shortfall amounted to about 14,000 or 15,000 units. That’s the biggest miss relative to expectations in quite some time.
Investors were reacting with nervousness. Shares fell over 8% on what was a strong day for the stock market. The S&P 500 and Dow Jones Industrial Average were rising about 2.59% and 2.66%, respectively.
Wall Street seems less worried though. More than a few analysts gave the company a pass, blaming changing vehicle logistics for the miss. Tesla said it had a much higher number than usual of “cars in transit” at the end of the quarter as the company transitioned “to a more even regional mix of vehicle builds.”
That makes some sense. Tesla, after all, recently opened up two new plants in Texas and Germany. Sales patterns have been changing. The German plant is serving the European market, which was previously served primarily from Tesla’s plant in Shanghai.
What’s more, Tesla produced almost 366,000 vehicles. If all had been delivered then there wouldn’t have been a miss. That that was pointed out by analysts at Oppenheimer, Baird, Deutsche Bank and others when reviewing Tesla’s third-quarter delivery report.
Future Fund Active ETF (FFND) cofounder Gary Black isn’t as optimistic as analysts and said those accepting the logistics explanation should ask two questions. First, why did Tesla offer Chinese buyers a discount to take delivery tied to Tesla’s insurance offering? And second, why did Tesla wait until Sept. 21 to export excess inventory?
The potential answer to both questions is that there was a Chinese demand issue. Tesla is still selling all the cars it can make — the company added in its delivery news release that all the cars produced have buyers. Still, some of those buyers that typically are in China didn’t materialize, so Tesla sent the cars built in Shanghai overseas.
Nothing like that has happened to the company before. That’s why investors were nervous.
Black, for his part, is a Tesla bull. The stock is the largest position in his fund. He pointed out that Tesla’s pricing action may have caused Chinese buyers to wait to order, hoping for another price cut.
That is one of the problems fluctuating prices can have for cars or any other product. When prices rise, buyers rush in and boost demand. But when prices fall, buyers wait.
Maybe pricing fluctuation is the only reason Chinese demand didn’t materialize in the third quarter. But Tesla investors will have to wait a few months to understand exactly what happened.
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