Whenever there is a plunge in the markets, consumers generally get more guarded with big-ticket items. And we may be seeing signs of this with Tesla (NASDAQ:TSLA). During the fourth quarter, the delivery numbers were worrisome. The result is that Tesla stock has come under some pressure, but it’s quickly rebounding.
In fact, the TSLA stock price has still held up fairly well during the market correction, especially when compared to other tech operators like Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB). For the past three months, the return is about 21%.
So what about the deliveries? Why the fall-off?
Well, here’s a rundown: The total for Q4 came to 90,700, up from 29,870 during the same period in 2017. Yet, the consensus estimate was for a more robust 92,000. There were also less-than-impressive deliveries of the Model 3, hitting 63,150. But again, Wall Street was too enthusiastic. The forecast was for 64,900.
But unfortunately, this was not the only bad news for Tesla stock. Keep in mind that the company also announced that it cut the price tag on the Model 3 by $2,000 to $44,000. The reason? To offset the impact from the reduction in the federal tax credit for electric vehicles.
TSLA Stock and Demand
The fourth quarter does show some deceleration in demand, but it is far from clear if this is lasting or not. Let’s face it, quarterly results can be choppy.
Despite this, it is still encouraging that more than three quarters of the demand for the Model 3 came from new customers. This is definitely a sign of enthusiasm (by the way, I know someone who purchased a Model 3 during Q4 and she is quite happy with the decision).
Going forward, there should be future demand from those people who have put down deposits for reservations for the vehicle. For example, Bernstein Research analyst Toni Sacconaghi estimates that close to 200,000 of them have not ordered Model 3s yet. Then again, the reservation holders may be holding off because they are waiting for the $35,000 version.
Something else that should help spur demand: Tesla plans to roll out the Model 3 in Europe and China during the next few months. According to Wedbush Securities analyst Dan Ives, the prospects for the vehicle look “very strong into 2019 and beyond.”
For example, today Elon Musk has announced that Tesla has begun construction of a car factory in China. Its on the fast-track and it may start production of Model 3s by the end of this year. Note that China has the largest market for electric vehicles.
Bottom Line on Tesla Stock
Last year, Elon Musk stirred up lots of controversy, such as with his ill-fated attempt to take Tesla private. It instead resulted in sanctions from the Securities and Exchange Commission (SEC).
But this may wind up being a positive. After all, Tesla has revamped its board of directors, with appointments of members like Oracle’s (NYSE:ORCL) Larry Ellison and Walgreens Boots Alliance (NASDAQ:WBA) Kathleen Wilson-Thompson (who is the head of HR). Such high-caliber people should provide strategic guidance for Musk.
Besides, there should be some other catalysts for Tesla stock. For example, we’ll likely get more details on the upcoming Tesla Y crossover vehicle.
But for 2019, the focus will continue to be on the Model 3. And while the latest quarter was a bit dicey, the miss was still fairly mild and again, there should be more catalysts to gin up demand. So for Tesla stock, there’s really no need to push the panic button.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
