How Tesla Delivered Despite Lockdowns

by Trefis Team
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Tesla (NASDAQ:TSLA) said that it sold a total of 90,650 vehicles over Q2 2020, with Model S and X deliveries standing at 10,600 units and Model 3 and Y sales standing at 80,050 units. [1] Although the numbers mark a 5% year-over-year decline, they handily beat market estimates, causing Tesla stock to jump by 8% in Thursday’s trading. The strong delivery figures come at a time when the broader auto market is reeling from a demand collapse caused by Covid-19, with U.S. auto sales projected to fall by about 34% over the quarter. [2]  Moreover, Tesla’s flagship Fremont facility actually remained shut for about six weeks over Q2 due to lockdowns associated with the pandemic. So how did Tesla manage these figures? We spell out three potential reasons.

How will the delivery numbers impact Tesla’s earnings, due later this month? Find our in our interactive dashboard analysis How Will Tesla’s Strong Q2 2020 Deliveries Impact Earnings?

Chinese Business Picks Up The Slack

Tesla’s Shanghai facility began production earlier this year, with an annual capacity of 200,000 Model 3 vehicles. Production at this facility has scaled-up very quickly, with Tesla indicating that it would be producing 4,000 vehicles in the plant by mid-2020. Demand from China has also been robust, as automotive demand in the country quickly bounced back and Tesla’s greater levels of localization and price cuts have helped the company boost sales in the country. Per China Passenger Car Association (CPCA), Tesla delivered over 11k Model 3 vehicles over the month of  May alone.

Price Cuts And Promotions

Tesla has also been quite aggressive with its marketing and discounts to stoke demand over the quarter. The company cut prices on its vehicles in May, with the Model 3 seeing a price cut of $2,000, while the Model S and X saw prices drop by as much as $5,000. Separately, the company apparently offered incentives such as a free year of supercharging for some customers buying Model 3 vehicles in June. The company also cut prices of its vehicles in China.

First Full Quarter Of Availability of Model Y

Tesla also likely benefited from Q2 being the first full quarter of availability of the Model Y crossover, which was launched in March. While the company did not break out Model Y sales, combined Model 3 and Y deliveries were up by about 4k units sequentially to about 80k units. The production ramp for the Model Y is likely to have been quicker than other new Tesla models, as the vehicle shares a lot of components with the Model 3. Delivery lead times for the Model Y have been surprisingly low at 4 to 8 weeks presently, versus about 8 to 12 weeks for Model 3 indicating that supply is less of a constraint for the vehicle.

Like Tesla stock but put off by its sky-high valuation and limited profitability? You might want to look at Federal Signal Instead. See our dashboard Is Federal Signal A Better Bet Compared To Tesla? for more details.

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Notes:
  1. Tesla Press Release, July 2, 2020 []
  2. New Vehicle Sales Expected to Drop in June, Closing a Second Down Quarter in 2020, Edmunds Forecasts, Edmunds, June 2020 []
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