Tesla Deliveries: Organic Demand Is Intact
Tesla announced Q3 production and delivery numbers, reporting an all-time record of 97,000 vehicles delivered. The company delivered 79,600 Model 3s (production of 79,837) and 17,400 S&X vehicles (production of 16,318).
Tesla shares, however, are down 4% on this news, as the company’s habit of setting high expectations again dampened good news. Last week, an internal email written by Elon Musk was leaked. In the email, Musk indicated that Tesla had a shot at their first-ever 100k vehicle delivery quarter, raising investor expectations.
The optics of the announcement may have been diluted, but the substance was impressive. Tesla built and sold a record number of vehicles in Q3. Deliveries were up 16% y/y on a tough comp from Q3 of 2018 when deliveries more than doubled sequentially to 83k. In the update letter, the company said that they achieved record net orders and that nearly all of those orders came from people without previous reservations. In other words, all signs point to the fact that organic demand, which is the crux of the bull/bear debate, is intact.
As a reminder, Tesla’s guidance calls for 360k-400k deliveries in 2019. This quarter pushed the 2019 total to 255,370, which means they must deliver 104,630 vehicles in Q4 to meet the low end of guidance. A 100k+ deliveries in Q4 would represent a major milestone for the company and a 45% y/y increase. In other words, hitting even the low end of 2019 guidance would be a big win for a company that struggles to properly set expectations.
Retailer Adoption of Apple Pay Quickens
We recently completed our third annual Apple Pay merchant adoption check. This involves checking the desktop websites, mobile websites, and iOS apps of a cohort of 100 of the top US online retailers for the ability to use Apple Pay at checkout.
We found that overall adoption continued to climb in 2019 across desktop, mobile, apps, and supporting banks, with overall adoption now ranging between 23% and 36% vs. 14%-24% last year. This excludes in-store point of sale systems, which dramatically increases adoption rates to 75% (reported by Apple). See last year’s results here.
Conclusion: Apple Pay adoption continues at an accelerating pace as the digital wallet slowly replaces the physical, but more importantly, it represents another sticky feature that makes users more likely to remain loyal to Apple products.
- Desktop adoption jumped to 23 of 100 sites, up from 14 (64% y/y).
- Mobile increased slightly to 28 of 100 vs 24 last year (17% y/y).
- iOS apps were 36 of 100 vs. 24 last year (50% y/y).
- Supporting banks increased to 4,250 globally, up 57% over last year.
Other Apple Pay Stats
On quarterly earnings calls, we are given incremental updates on transaction growth and adoption from Tim Cook. On the Jun-19 earnings call, Cook announced that Apple Pay is completing nearly 1 billion transactions per month (more than double y/y) and is live in 47 markets, up from 24 markets last June. We estimate 18% of all Apple Pay transactions occur in the US. Apple reported 25% of transactions in the US in Jun-17, and since then, Apple has increased the number of countries from 16 to 47.
In January 2019, Apple announced that Apple Pay is accepted at 74 of the top 100 US retailers and is available at 65% of all US retail locations. This includes in-store point of sales systems, so it differs from our check and shows that in-store adoption is outpacing online and in-app adoption.
Our Adoption Estimates
We estimate, based on survey work as well as the growth in transactions, countries, locations, and supporting banks, that 48% of global iPhone users have enabled Apple Pay. This is up from 33% a year ago in Sep-18. That implies there are currently 441M Apple Pay users, up 8% sequentially and 51% y/y.
Amazon Pushes the Boundaries on Smart Hardware
Amazon exceeded high expectations from the tech community with a slew of new hardware announcements: the Echo device lineup extended to earbuds, eyeglasses, and a ring. Here are our takeaways along with some data that sheds light on the voice computing market.
- Amazon is moving quickly to stay ahead of other platforms and retain market share. We estimate that Echo had 57.3% market share in smart speakers vs. Google at 32.6% and Apple at 7%.
- But hardware alone is not enough. Amazon’s Alexa platform is lagging Google Assistant and Apple’s Siri in performance. We test each platform regularly, asking each one 800 questions. Consistently, Alexa comes in behind Google Assistant and Siri.
- Eventually, we think this catches up with Amazon. We expect Google to overtake Amazon in the smart speaker space by 2021.
Alexa’s Performance Lags Google Assistant and Siri
In Dec. 2018, we tested four smart speakers by asking Alexa, Siri, Google Assistant, and Cortana 800 questions each. Google Assistant was able to answer 88% of them correctly vs. Siri at 75%, Alexa at 73%, and the now defunct Cortana at 63%. Last year, Google Assistant was able to answer 81% correctly vs. Siri (Feb-18) at 52%, Alexa at 64%, and Cortana at 56%.
Today’s event underscores Amazon’s commitment to hardware and the Alexa line of products, but to what end? Google’s business model aligns well to the smart speaker business — understanding and collecting information. Apple’s business model also aligns – selling an ecosystem of products and services. Amazon’s isn’t as clear.
Market Share Reflects Age Not Performance
We estimate that Amazon sold 28.5M Echo devices in 2018, representing 57.3% of an estimated 49.7M smart speakers sold worldwide. To compare, we peg Google’s market share at 32.6% and Apple’s market share at 5.4% as of 2018 (3.0% other). Today’s market share is reflective of the device’s time in the market, not performance.
Source: Loup Ventures
Amazon has an early lead, but we think the better product wins. Specifically, we expect Amazon’s market share to contract to 43.0% by 2021, with Google garnering 48.4% and Apple taking 5.4% (3.2% other).
Source: Loup Ventures
Amazon, Google, and Apple Are in Voice for Very Different Reasons
The business model for Amazon’s Alexa ecosystem is also a bit of a head-scratcher. It makes sense that Apple sells HomePod as part of its hardware + services model, or that Google gathers information from Google Home to sell ads. But the buying experience on Alexa remains prohibitively challenging. So, it’s not clear what Amazon is really driving through voice other than low-margin device sales. The strategic value of today’s announcements to Amazon’s core business just isn’t clear. However, it can’t be ignored that Amazon is dominating the broader conversation around voice and smart devices. When consumers think of smart homes and voice computing, Alexa has an advantage by being top of mind. While the long-term strategy remains unclear, Alexa’s proliferation is impressive.