Why Is Tesla’s Stock Down?

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Tesla Motors’ (NASDAQ: TSLA) stock is up 53% on a year to date basis, making it one of the best performing stocks despite the recent decline in its share price.  The decline followed the reporting of delivery numbers of Tesla’s Model S and Model X luxury vehicles for the second quarter of fiscal year 2017. Seemingly, even the announcement that Tesla would start production of its mass market Model 3 electric vehicle in July and ship close to 20,000 units by the end of the year wasn’t enough to offset the impact of those numbers.

In the second quarter of fiscal 2017, Tesla delivered just over 22,000 vehicles. 10,ooo of these vehicles were Model S and the rest Model X. This puts Tesla’s deliveries for the first half of the year at approximately 47,100, implying a yearly run rate of 94,200 vehicles. In 2016, Tesla delivered around 76,000 vehicles with most of those deliveries coming in the second half of the year. Over the past four quarters, Tesla’s combined deliveries of Model S and Model X have remained at around the same level, stoking fears that demand for these vehicles has already topped. Analysts cite Tesla’s staggering 30% market share in the large luxury sedans segment as proof that its market is already saturated.

According to our valuation of Tesla, more than half of its valuation comes from the Model 3. However, the Model S and the Model X make up around 40% of its valuation. We project the two vehicles to sell around 110,000-120,000 units combined each year. If those sales decline by 16% to around 100,000 units we expect our valuation of Tesla to fall by around 5%. Since the announcement of the delivery news, Tesla’s stock has fallen by around 7%.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Tesla Motors

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