In the aftermath of Vertical Group's controversial report in which analyst Gordon Johnson calculated the Model 3 cancellation rate was a disastrous 66%, following a tide of client requests for additional clarification, the outspoken contrarian analyst (whose $93PT on TSLA is the lowest on the street), has released a follow up report in which he highlighted the following key dates and comments:
8/1/17 – Following 2Q17 results (i.e., August 2017), Elon Musk noted that TSLA had 518K in Model 3 reservations, with cancellations of 63K, or net reservations of 455K (link);
11/1/17 – After 3Q17 results, TSLA did not provide a detailed Model 3 reservation figure, but instead told investors that “global reservations continued to grow significantly” (link); and
5/2/18 – In the 1Q18 earnings press release, Model 3 reservations were stated to “exceed 450K at the end of Q1” (link).
So, Johnson explains, if on 8/1/17, net reservations for Model 3 cars were 455K, then on 11/1/17 “global reservations continued to grow significantly” according to Tesla, yet on 5/2/18 net reservations were still just 455K cars (including 10K cars delivered through the end of 1Q18), that means over roughly a 10-month period new reservations were essentially flat, or 0 vs. TSLA’s target to produce 5,000 cars/week.
This would represent a big shortage of demand vs. supply on its own, but there’s more.
Based on comments from Gordon Johnson, in discussions with Tesla management on Wednesday evening of this week, which ended up corroborating his analysis, he was told that over the past roughly 10 months new reservations for Model 3 cars have been flat (or, again, stated differently, zero). While Tesla noted that this was because the backlog was “full”, and predicted that if 50% of the current 455K in net reservations were canceled they’d be filled the next day, this is a very important, and potentially problematic, statistic for Tesla bulls (i.e., while everyone is focused on Tesla achieving 5K car/week of production, maybe the attention should be on demand instead).
Why is it important?
Well, on Tesla’s 5/2/18 earnings conference call, when Joseph Spak from RBC Capital Markets asked the following question:
“The first question is related to the Model 3 reservations, and I was just wondering if you gave us a gauge as maybe some of the impact that the news has had. Like, of the reservations that actually opened and made available to configure, can you let us know, like, what percentage have actually taken the step to configure?”
Elon Musk responded with his now infamous: “We're going to go to YouTube. Sorry. These questions are so dry. They're killing me.”
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Judging by the sensitive CEO's reaction, it appears that any legitimate analysis around this topic is very important.
We would look for clarification from Tesla if indeed Model 3 reservations have been “flat” for some time now.