Yesterday, I wrote an article about Tesla Motors Inc (TSLA), and how the stupendous early reservation numbers for the Tesla Model 3 also brought to light three major risks that TSLA stock owners should be aware of.
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You can read the article here, but the threefold risks were:
- Full tax incentives won’t be there for Model 3 buyers, which may decrease interest.
- Can Tesla actually fulfill Model 3 orders in a timely fashion?
- Tesla needs more capital, and TSLA stock could be diluted by an offering.
Hours after I wrote my article, TSLA issued a press release saying it had made 14,820 vehicle deliveries in the first quarter, about 1,200 less than the 16,000 it was shooting for.
In other words, concern No. 2 gained further validation. Tesla’s ability to deliver on its ambitious vision is a major question going forward, and unfortunately, TSLA has simply given zero reason for anyone to have faith in their execution.
That’s a problem when you’ve got nearly 300,000 reservations and growing for your first mass-market vehicle.
Let’s take a look at what exactly went wrong with TSLA’s first-quarter deliveries … and how investors should react to Monday’s press release.
TSLA: A Consistently Bad Track Record
While deliveries were up nearly 50% year-over-year, delivering 14,820 vehicles against a goal of 16,000 is still a pretty large (7.4%) miss. Thankfully, TSLA maintained its guidance of delivering between 80,000 and 90,000 vehicles in 2016.
The question Tesla stock owners should be asking themselves right now is: “What was the problem here and is it likely to be repeated?”
TSLA identified the issues for us in its release. There were three of them:
“Tesla’s hubris in adding far too much new technology to the Model X in version 1, insufficient supplier capability validation, and Tesla not having broad enough internal capability to manufacture the parts in-house.”
While the company goes on to say that it’s addressing all three issues to make sure they don’t recur with the Model 3, the fact of the matter is that Tesla — at least when it comes to production, delivery and timelines — has been rather woeful on execution.
Model X deliveries came a full two years after they were initially supposed to, and even then, they just began to merely trickle out. As you can see, that issue has even carried over into the first quarter of 2016.
How can we possibly reasonably expect TSLA to execute going forward? Why is next time — when Tesla tries to make the quantum leap from small-time EV maker to big-time auto industry player — the exception to what has been a remarkably consistent rule?
You heard it via Twitter Inc (TWTR) from the Golden Boy Elon Musk himself, who on Saturday said the Palo Alto, California-based automaker would have to build a plant in Europe to fulfill future demand.
The stratospheric demand for the Model 3 now requires Tesla to address these three very difficult issues (hubris, supplier capacity and in-house production capacity) in a hurry. Frankly, I’m not at all sure TSLA can do it.
One might argue that of all three, hubris is the most difficult problem to get rid of. Off-the-charts confidence is part and parcel of Tesla’s mission and Elon Musk’s personality, and I doubt that can change anytime soon.
So do I understand why, as I write this, TSLA stock is off about 1%? Yes, and I think it should be down more, given the contents of Monday’s release, which might as well have read, “DELIVERY SHORTFALL IN Q1. WARNING: SIGN OF THINGS TO COME.”
Remember that notorious PowerPoint leak that marked the Model 3’s arrival date as 2018 (not late 2017)?
Yeah, that’s when we should really expect it.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.