Summary
- Breaking with tradition, Tesla doesn’t appear on the Detroit Auto Show Press Conference schedule for January 12-13.
- Last year, Tesla preannounced positive December quarter sales at that event, after which the stock immediately skyrocketed.
- I interpret this to mean the December quarter is extremely back-end loaded and therefore likely on the weak side.
- Tesla was also expected by some to show either the future Model X and/or Model 3 cars at the Detroit Auto Show.
- However, showing one or both of those models would risk “Osbourneing” sales of the current Model S.
Everyone in the industry refers to it as the “Detroit Auto Show” but it is technically called NAIAS – North American International Auto Show. It is the auto industry’s most prestigious trade show.
The first two days at major auto shows are filled with back-to-back press conferences by the automakers and some other entities. Typically, a high-ranking official such as the CEO or head of sales gives a brief presentation and unveils one or more future cars.
Last year, Tesla (NASDAQ:TSLA) hosted a press conference at Detroit, despite not having any new product to show. If memory serves me, there were three main subjects covered in the press conference:
- Tesla discussed the car’s fire safety.
- Tesla discussed the car’s winter-worthiness.
- Tesla announced its dominant sales metric in the form of the December quarter unit car sales number.
For those of you with good memories, Tesla announced a December quarter sales number that was stronger than the market expected at the time – 6,900 cars worldwide – and the stock skyrocketed immediately. In a month and a half, the stock basically doubled to an all-time high ($260).
In other words, Tesla set the precedent that this was the moment to share the good news of the quarter, over a month ahead of the regularly scheduled quarterly earnings call. As it turns out, it was good news and the stock responded.
Fast-forward to this year. On its November 5 earnings call, Tesla guided full-year 2014 deliveries to 33,000 cars. This implies little over 11,000 cars in the fourth quarter. The stock traded up meaningfully the day after, despite the guide-down by 2,000 units.
Early last week, Inside Evs posted its estimate for Tesla’s November month US sales: 1,200 cars. Add 1,300 from October and you have 2,500. Even if you add something for international, the gap to fill the difference between 2,500 and 11,000 is extremely wide. This is the mother of all back-end-loaded quarters. Most likely, well over 50% of the quarter’s revenue must come from the month of December. As seasoned stock analysts know, that rarely works out well.
International sales, you say? Show me any country, any month, in the fourth quarter, where the Tesla unit sales number doesn’t read like a sports score – ranging from soccer to basketball. It’s 10 units here, 100 there – most closer to 1 or 10 than 100 or 200. No meaningful scale in a single non-U.S. country in any month in the fourth quarter thus far. Probably the only country that’s a “black hole” in terms of a meaningful uncertainty is China.
Another indicator that the December quarter isn’t shaping up very well, is that as of this writing – December 10 – you can go to Tesla’s website and order the newest flagship model – you know, the one supposedly in highest demand – for delivery by December 31. That’s three weeks from now.
If I want to order a fine leather sofa, it could take several months to take delivery. How can you even make a car in three weeks, even if there were nobody ahead of you in line? I mean, the backlog must be extremely close to zero.
Obviously, that assumes Tesla’s statement on its website that you can take delivery by December 31 is accurate. Perhaps they are just messing with us!
If you take Tesla’s website at its word, it does not take a rocket scientist to figure out that the December quarter has a high probability of being weak:
Thanks to Inside Evs, we have a good estimate for U.S. sales for October and November.
Thanks to the auto registration numbers in most relevant countries, we know what the sales were in those countries in October and November.
The lead time to order Tesla’s hottest new model – the P85D – is alarmingly short. This would appear to bode extremely bad for December month sales.
So let’s assume this theory is right – that the December quarter will be weaker than what it will take to make the 33,000 full-year unit estimate, implying little over 11,000 cars in the December month. What does that have to do with Tesla pulling out of the Detroit Auto Show’s press conference schedule?
(For the record, I have contacted Tesla’s public relations department for comment on this. If they respond, I will publish an update).
The issue here is the precedent set from last year. Seeing as Tesla so triumphantly bragged about its December sales number from the podium last year, how could it be silent this year? If it presented on another topic – such as showing a new car model – the press would still ask Tesla about December sales. Any failure to answer, referring to the quarterly earnings call a month later, would be met by the immediate interpretation that they had missed the quarter.
And then the stock would likely plummet.
Better to pull out of the trade show’s press conference schedule altogether. Lay low. Perhaps announce some other upcoming product introduction event later in the quarter.
But wait, there is more!
Tesla famously DOES have a two new products in the pipeline, the Model X and the Model 3.
The Model X was introduced in February 2012 and was supposed to ship in December 2013. After several delays, the newest revised date is now 3Q 2015. Normally, this would mean that January 2015 would be a good time to actually show the car. It’s a typical industry lead time – six to eight months. It would be the same as the Chevrolet Volt 2.0.
The Model 3 isn’t expected to enter significant volume production until sometime in 2017 at the earliest. Yet, some bulls on the stock, such as author Randy Carlson who publishes here on Seeking Alpha, commented only hours ago, “I’m going to be looking closely at the Model III due to be shown in Detroit in January…”
So there’s some expectation in the market that the Model 3 would be shown at the Detroit Auto Show. Perhaps it will still be shown in some other unusual format, other than the traditional press conference. That said, the prospects are looking bleaker now that Tesla is not listed as a participant in the press conference schedule, unlike recent years.
Actually, there is a good reason why Tesla ought not show any new models, whether the Model X or the Model 3, at the Detroit Auto Show this year. The reason is simple: If Tesla shows either an unusually attractive product (Model X) or an improved car selling for half the price of the Model S (Model 3), it would “Osbourne” itself with the consuming public.
In other words, Tesla just can’t afford right now to have customers postponing or shifting their orders away from taking delivery of Model S cars in the first half of 2015 and beyond, in favor of waiting for the Model X or Model 3 instead. The order book is shaky enough as it is. Tesla needs people to take delivery of the current model now, not to switch their deposits to a future model.
This does put Tesla in a dilemma, however. Some of the competition will likely use the Detroit Auto Show to show very attractive alternatives to the late-2015 Model X and late-2017 Model 3.
For example, Audi confirmed to me that it will show an approximately 200 mile EV range R8 sports car at Detroit. More recently, Car And Driver magazine published a report saying Audi will show the plug-in hybrid electric-diesel Q7 SUV with three rows and room for seven people, at Detroit as well.
We already know that GM (NYSE:GM) will make a big deal of the Chevrolet Volt 2.0, which will be the industry’s first significant and complete redesign of an existing plug-in electric car. In the Chevrolet Volt 1.0 from 2010, GM delivered a plug-in car with long overall range (380 miles, the first 37 of whom are on electric) for $41,000, approximately seven years ahead of the expected Tesla Model 3. The Volt 2.0 will obviously be an improvement.
In the end, if one assumes Tesla’s December quarter numbers are going to be below expectations, Tesla is left in an uncomfortable position when it comes to hosting a press conference at Detroit this January. Just imagine this imaginary Q&A:
Question: How many cars did you deliver in December?
Alternative 1 answer: “Fewer than 11,000.”
Result: Tesla’s quarterly miss would be the talk of the whole auto show.
Alternative 2 answer: “We can’t tell you. You will have to wait until the earnings call.”
Result: Everyone would suspect Tesla missed the quarter.
Question: Why are you not showing us the Model X? Is it delayed again?
Answer: No, we’re getting close, but it’s just too early to show it.
Result: Many would interpret that to mean the Model S order book is too weak to withstand any Osbourneing from a more attractive car.
Question: Why are you not showing us the Model 3? Some people were expecting?
Answer: No, it’s just too early to show it.
Result: Many would interpret that to mean the Model S order book is too weak to withstand any Osbourneing from a car that will cost half.
As you can see, if Tesla did indeed miss the December quarter and doesn’t want to show any of the two new car models at the Detroit Auto Show, it would have made for a painful press conference. Better to just not host a press conference at all.
Of course, if you think that Tesla not hosting a customary Detroit Auto Show press conference is good news, you should hurry up and buy the stock. In your mind, it must mean that the December sales were better than expected, and that the order book for the first half of 2015 is stronger than expected.
For now, I’ll continue to take the other side of that bet.
Disclosure: The author is short TSLA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends product launches with almost all automakers, and some of those trips are paid for in whole or in part by the automakers. The author also regularly test-drives cars provided by almost all automakers, to members of the press.
Why Does Tesla Not Appear In The Detroit Auto Show Press Conference Schedule? (TSLA)
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