A new piece from an analyst at Pacific Crest Securities argues that the Tesla Model S may be approaching its run-rate ceiling, and that the company may now have a “demand problem” — with the implication being that future Model S sales will flat-line and probably decline, according to the analyst in question anyways.
We are incrementally more cautious on overall Tesla demand. Consistent with our October checks, our latest checks with US sales centers indicate that Model X orders are still lagging expectations. While getting the X to showrooms would help, we don’t expect that to happen until later this spring due to production challenges. Additionally, Tesla’s March-ending Model S promotional offer of 20% off the old lease cost continues, but we do not believe it has driven a noteworthy increase to sales. That the Model S should be benefiting from the lagging Model X underscores our incremental skepticism on overall demand.
Model S may be approaching its run-rate ceiling. Based on historical delivery trends for luxury sedans and SUVs, we think the addressable market for the Model S may already be hitting its run-rate ceiling, underpinning our skepticism around general Model S demand…
March 29 remains the positive catalyst still out there. Earnings notwithstanding, we’d expect the stock to act better into the March 29 Model 3 unveiling, but are reserving judgment until we can see the vehicles intended for the mass-market.
We’d continue to avoid Tesla. The beginnings of potentially lagging demand, combined with likely persistent production challenges, keep us avoiding Tesla. If we get further evidence of a lack of demand, the stock could see a significant downward re-rating, which reinforces our caution at the moment.
CEO Elon Musk has previously stated that he expects Model S + Model X sales to total more 100,000 a year combined, once various markets mature — and also that he expects Tesla to roughly double the number of its vehicles on the roads in 2016 (from ~50,000 to ~100,000). But then he’s quite an optimistic guy isn’t he? That said, I remain a bit skeptical of the analysis above. Yearly sales figures of around 50K each for the Model S and Model X seems doable for the next couple of years at least…
It’s also worth noting that there has yet to be any real update to the Model S platform yet — an update that introduces more of the gee-wiz type features that Tesla has made a name for itself with could boost sales substantially. Fully autonomous driving being a case in point. If Tesla does manage to be the first to market with a fully autonomous car that’ll be enough, even just on its own, to boost sales considerably higher.
As noted in the article quoted above though, the company’s overall prospects likely depend far more on the sales performance of the upcoming Model 3, than on the future sales performance of the Model S — and perhaps to a lesser degree on its energy storage business, the future release of a Tesla truck, the Roadster revamp, etc.