An Unfolding Tesla Demand Crisis?
I have updated this with the Chinese 4th week of December Tesla registrations numbers.
Since July of this year, Tesla’s order backlog has been shrinking very significantly. After the Shanghai China plant was refurbished to supply more cars, the Chinese order backlog has pretty much vanished. Tesla’s response was to cut prices by up to 10% and then to add on even more incentives, but this seems to have produced only a small bounce in the order book in October which rapidly disappeared in November. In the first four weeks of December the Chinese insurance registrations for Tesla vehicles lag those of November by 11,805 vehicles (43,816 vs 55,621); registrations are actually falling as the month progresses (week 2: 14,366; week 3: 10,254; week 4: 8,915). In China, Tesla tends to sell all of its Shanghai plant’s output locally in the last month of a quarter given the shipping times for exports. The plant has a capacity for 100,000 cars per month, but sales look to be lagging the 62,000 of November. Given the loss of retail incentives in January 2023, a rush of buyers prior to year-end would be expected, but this is not happening for Tesla. It is for BYD, with its first 4 weeks of the month insurance registrations increasing month over month (187,140 vs 161,690), with weekly registrations increasing as December progresses. Unless there is a big surge in Tesla registrations in the last week of the month, and therefore sales, Tesla will be on track to have its lowest last month of the quarter sales since September 2021! That is during a time when the overall Chinese EV market will have grown by about 60%, leading to a significant drop in Tesla market share year over year. Tesla suspended production at its Shanghai plant on December 25th, reflecting possibly both demand issues and the burgeoning Model Y production of Tesla Berlin. Reuters has reported that Tesla will only run production for the first 17 days of January 2023, followed by an extended Chinese New Year shutdown (which is not normal practice for the Shanghai plant).
With demand issues in China, and the Shanghai plant now able to produce 100,000 cars a month, the result has been a big jump in exports to Europe and other non-US markets. In October, Tesla Shanghai exported over 54,000 cars, and a further 38,000 in November – a total of 92,000 cars. Taking into account shipping times, the vast majority of these that are destined for Europe will be sold in November and December. In addition, Tesla Berlin is producing 3,000 cars per week – 27,000 cars in November and December. As international (outside China, Europe and North America) sales are pretty small, we can assume that over 100,000 Tesla cars are available in Europe in the last two months of the year; pretty much double Tesla’s previous record sales in Europe for the last two months of a quarter. Even if Tesla sells that amount of cars, it may very well be the result of a one-off crushing of the European order book (as well as probably the international order book); just as Europe is entering a deep recession due to interest rate rises and incredibly high energy prices due to the self-defeating Russia sanctions. To make things harder, electricity prices are now so high in some countries in Europe that its less expensive to fuel up a gasoline car!
In the US, the order book has also very significantly dwindled from over 200,000 to about 60,000 over the past few months. This could be caused by three different issues (i) increasing Tesla production in the US (the Austin plant) eating into the order book (ii) people putting off orders to wait for the US$7,500 tax credit next year and (iii) liberal progressives punishing Musk for his takeover of Twitter and rightward turn – social media is full of liberal progressives cancelling their Tesla orders in political/cultural reaction to Musk’s actions at Twitter. Number (ii) has been somewhat ameliorated by Tesla cutting prices for the balance of 2022, so we may put a much greater weighting on increasing production and the destruction of the Tesla brand liberal progressive halo. Tesla may get some demand pop from the 2023 US US$7,500 federal incentive, but the other two issues will not go away. At the same time, the many rises in interest rates by the Federal Reserve seem to be now pushing the US into a deep recession.
Update: The Tesla global order book fell further in the first week of December to 163,000, from 190,000 the previous week. In China it fell from 12,533 to 5,879. In Europe from 84,771 to 67,068 - the quick reduction assumed from the increased exports from Shanghai and the increased Berlin production. The US order book was stable at approx. 59,000 week over week.
With Chinese EV growth perhaps decelerating somewhat from 2022 to 2023, and recessions cutting vehicle demand in North America and Europe, the prospect for global EV sales will be much less bright next year. Competition will be increased, especially in China, and an ongoing crash in US used car prices (with used Tesla prices falling faster than for the overall used car market) will provide many lower priced options for consumers in that market (and an increasing void between new and used car prices). Tesla will be entering such a year with a very small order book relative to only six months ago, and with no new products for the whole year (the Cybertruck may be available in the US late in the year, but only in small volumes). Any attempts to support/grow sales by reducing prices will cut into profit margins, while a maintenance of current margins will probably lead to stagnating or falling sales. This may not be existential for Tesla, but with its shares at a P/E ratio of still about 50 (and already fallen in price by about 70% from peak) and assumptions of still fat profit margins (the E), it may be very financially impactful for Tesla shareholders.
2023 may be the year that Tesla becomes a much more normal car company, fighting for market share in increasingly competitive markets and with both an E and a P/E much closer to industry averages. At the same time, BYD seems to be moving from strength to strength. Its, and other Chinese EV makers growing presence in Europe and international markets through 2023 will only add to Tesla’s woes. Then there will be 2024, and Tesla will still not have a new model in China and Europe.
https://insideevs.com/news/627076/estimated-tesla-order-backlog-november2022/
https://cnevpost.com/2022/12/20/china-nev-insurance-registrations-3rd-week-dec/
https://cnevpost.com/2022/12/13/china-nev-insurance-registrations-in-2nd-week-of-dec/
https://cnevpost.com/2022/12/06/china-nev-insurance-registrations-in-1st-week-of-dec/
https://cnevpost.com/2022/12/27/china-nev-insurance-registrations-4th-week-dec/
https://insideevs.com/news/628254/estimated-tesla-order-backlog-dec8-2022/
https://www.reuters.com/business/autos-transportation/tesla-run-reduced-output-shanghai-january-plan-shows-2022-12-27/
https://www.reuters.com/business/autos-transportation/tesla-used-car-price-bubble-pops-weighs-new-car-demand-2022-12-27/