Tesla Takes Another Measurable Step Forward
Tesla takes another measurable step forward with 112k deliveries, ahead of Street expectations of 106k. This is the 3rd consecutive quarter of sequential delivery growth despite declining tax credits and trade headwinds, further evidence that consumer demand for EVs is sustainable and growing. In Mar-19 the company delivered 51k vehicles, 95k in Jun-19, 97k in Sep-19, and 112k in Dec-19.
The delivery outperformance came from Model 3 with 92k vs the Street at 88k. We believe the average selling price of Model 3 in Dec-19 will be around $50k, suggesting the $35k average US car buyer is willing to spend more on electrification.
We Expect Tesla Will Exceed 2020 Street Deliveries Estimate of 463k
With the addition of China Gigafactory, which will begin customer deliveries of Model 3 next week, along with the release of Model Y in the fall, we believe the company can grow deliveries by 28% in 2020 compared to the overall auto industry that will likely be flat. We expect Tesla to increase deliveries quarter-over-quarter, giving credibility to the belief that the electric car theme is here today and is opening up a vast addressable market — 97% of cars sold today are internal combustion. If our prediction is correct, Tesla shares will continue to move higher. Tesla is a pure-play investment in the undeniable truth that the future of the automotive industry is both electric and autonomous. We expect Tesla to exit next year with above 60% US EV market share, compared to about 75% today. As a point of reference, in 2018 GM lead the overall US auto market with 17% share.
The Bull Case for Long-Term Tesla Investors
Outside of today’s 4% move, we attribute the surge in Tesla shares in December 2019 (up 30%) to short sellers covering positions based on the emerging consensus that Tesla will stay in business long-term. That said, Tesla has not won over many long-term investors. While the story still has material risks related to demand, production expansion, talent retention, and Elon’s behavior, we believe that, over the next two years, Tesla will slowly win over long-term investors. If we are correct that the company will sequentially increase deliveries in each quarter of 2020, shares will likely continue to rise, as the company that has a pole position in the future of vehicle electrification and autonomy and should be valued more than its current $81B market cap.