Yes, the honeymoon phase for passionate Tesla owners and shareholders is officially over, following a year of less-than-pleasing quarterly reports, exodus of top executives, fights between Elon Musk and the SEC, delays in Model 3 deliveries, and depressing news about working conditions at its Fremont, Calif., assembly plant.
Strong demand for its products may be the salvation that Musk and Tesla so badly need.
It does sound like Tesla, Inc., can be an extremely demanding, depressing place to work, at least as far as employees are concerned. Musk does expect quite a lot from union workers and managers, many of whom have had more than enough working long hours and extra shifts.
Yet, take a look at the other side of the coin — U.S. sales numbers.
Edmunds.com estimated the company’s May sales were up 71 percent from the same month last year, which is much higher than any other automaker selling any kind of vehicle in the U.S. market. While China and Europe have been important for Tesla, the U.S. market remains its hub.
It was the central theme at Tesla’s annual shareholder meeting on Tuesday. Scrutiny has been pervasive recently about a poor quarterly earnings report and battery fires in Teslas. Some car shoppers aren’t happy with window sticker prices, but long-term, it’s not really an issue, the CEO said.
“I want to be clear: there is not a demand problem,” Musk said at the beginning of his presentation. “Absolutely not.” Related: Escalating Trade War Signals More Pain For Oil
Ramping up Model 3 production has been behind much of the sales increase, but the demand continues to stay strong. The electric carmaker’s biggest challenge has been hitting its lofty Model 3 delivery targets set long ago by Musk.
Tesla’s dominant presence in the relatively new EV market landscape is obvious for most observers. The company has more than half of the U.S. marketshare this year for plug-in vehicles (that includes all the light-duty battery electric and plug-in hybrid vehicles sold in America).
Tesla’s two main competitors are being clearly beat — the Chevrolet Bolt vs. the Tesla 3; and the BMW electrified lineup vs. the Tesla Model S and X.
Through May, there have been 46,425 Model 3s delivered in the U.S. and 6,622 Chevy Bolts. There has yet to be any other electric vehicle launched in the U.S. that has the appeal of the Model 3 and Chevy Bolt. Having better range than other previously competitive cars, such as the Nissan Leaf, has helped quite a deal; along with competitive starting prices in the mid-$30,000s and generous federal and state incentives for making the purchase.
On the luxury side, German automakers have been eyeing Musk’s moves for years. So far, BMW has launched the most plug-in vehicles and brought the lineup to America. But it’s still a hands-down win for Tesla in the luxury EV space.
The Tesla Model S has so far seen 5,475 units sold this year in the U.S.; and the Model X has seen 6,275 units sold. BMW’s top seller is the plug-in hybrid 530e, which has only seen 2,369 units sold in the U.S. this year. The all-electric i3 has only seen 1,734 electric vehicles delivered to owners so far this year. Related: Russia Calls The Shots In A Fractured OPEC
Expectations are high for the Tesla Model Y, an upcoming electric compact crossover utility vehicle in development. It was unveiled in March, with deliveries starting in late 2020. The company is planning on producing the EV in fairly high volumes, more like the Model 3 than the Models S and X.
Tesla does face a big challenge with its $7,500 federal tax credit winding down. Customers buying between July 1 to Dec. 31 of this year will see that credit cut down to $1,875 — and then going away after the first of the year.
The government for years has been giving Tesla an offset to it high production costs and zero-to-thin profit margins. Since 2012, the company has brought in more than $1.7 billion selling regulatory credits to competitors. Most recently, General Motors and Fiat Chrysler Automobiles NV disclosed to the state of Delaware that they had reached agreements to buy federal greenhouse gas credits from Tesla. While the Trump administration has been working to soften federal fuel economy and emissions rules, automakers still have to comply with intensifying U.S. environmental regulations that were set a few years ago.
There's also the seasonal performance factor, with Tesla typically doing much better in the second half of the year. Tesla can expect to see sales increase toward the end of the year, which can be the norm for EV sales and overall new vehicle sales.
The company hit its peak in market valuation in 2014, with stock at around $300. This year has continued to see a downward slide, with the low point of about $179 per share reached earlier this month. Stock has been returning to the low $200-range in the past few days.
Musk continues to brag about ambitious goals for his company — and that can include electric big-rig trucks and fully autonomous EVs. But in the end, its current models have been strong selling enough to offset the weaknesses and vulnerabilities coming from its top tier and from the intensely competitive global EV market.
By Jon LeSage for Oilprice.com
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