Pacific Crest Analyst: Model S May Be Approaching Its Run-Rate Ceiling

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.

teslalogo-e1384534485431Here’s an excerpt of the analysis in question via Barron’s (tip of the hat here to “calisnow” on the Tesla Motors Club forum):

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.

6 thoughts on “Pacific Crest Analyst: Model S May Be Approaching Its Run-Rate Ceiling

  1. I am not so sure Elon will just sit around and watch the S sales decline with his hands in his pockets. “Oh jeez, that was great but its over now.” I don’t think these analysts are looking at the whole picture. There is the Model 3, and what else does Elon have coming?

  2. Based on how small the market for luxury sedans is, he’s right, model S may be approaching its maximum run-rate.

    However, Tesla Motors originally thought it would probably hit its maximum run rate around 25K/year (look at the presentations from back then), and it’s already at 50K/year. So this run rate is gravy — it’s already better than projected.

    This is actually why Tesla produced the Model X. Luxury SUVs/CUVs are a larger market than luxury sedans now. And this is at least another 50K per year.

    So again, this isn’t news.

  3. Tesla isn’t exactly trying very hard to stimulate demand. There’s also quite a few territories they aren’t yet delivering cars in.

    Clearly there is some untapped demand, as a few people are already importing Model S to those territories despite the lack of official support, service centres or Superchargers.

  4. @ Marcel.
    Exactly. Probably a refreshed front end to match the look of the model X as well. Or maybe a complete exterior refresh.

    Also something to note is that the power output of the P90D is limited by the battery size and its maximum discharge rate and not the size of the current motors. The motors have more capability than the battery can pump into them.

    This was probably intentional with Musk knowing that there would be multiple battery upgrades over the full run of the gen 1 Model S. Having the motors oversized would allow the battery size growth and in turn greater power output to increase with each iteration without having to keep redesigning the motors every 2 years.

    In short the P100D MP will be even faster.

  5. Probably a good time to buy stock, before the model 3 unveiling. I’m broke as broke can be so don’t take my word for it. Just seems like a reasonable time for those who trust the fundamentals of Tesla’s business for the long run. Perhaps it has been overvalued and is balancing itself at a more appropriate value or perhaps the pendulum will swing higher as the model 3 release hype begins and once production and delivery begins in 2017-18.

    Gigafactory production and powerwalls will keep making waves over the next couple years too.

    I had $200 in a clean energy mutual fund and I watched it go up and down for a while. Still learning the basics of all this stuff so anyone reading this trust your own judgment with your money. If I did have money to invest I’d find a solar/wind yieldco and I’d buy Tesla stock… and an ev, build an earthship and install solar w/ storage… but that’s just me 🙂

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