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Is Tesla's Model 3 Price Cut In China Indicative Of A "Significant" Demand Problem


Is Tesla’s Model 3 Price Cut In China Indicative Of A “Significant” Demand Problem

Tyler Durden

Wed, 07/22/2020 – 12:35

Submitted by Gordon L Johnson of GLJ Research

TESLA PRICE CUT ALERT: TSLA Cut the Price on its Model 3 LR MIC by -6.1% Last Night; the Company Appears to Have a “Significant” Demand Problem in its Key “Growth” Market (i.e., China)

WHAT’S THE NEWS? Yesterday morning, the price on TSLA’s website for its Model 3 Long-Range (“LR”) made-in-China (“MIC”) car was ¥344,050, which included a Chinese subsidy of ¥20,250 (i.e., see the asterisk for the Model 3 SR+ MIC car and Model 3 Performance MIC car here) – the asterisk that denoted the ¥20,250 subsidy for TLSA’s M3 LR MIC car was removed this morning, but the ¥344,050 price to the consumer remained, meaning TSLA “ate” the removal of the subsidy by the Chinese government.

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Stated differently, the price TSLA was collecting on each Model 3 LR MIC sold as of yesterday was ¥366,550 (i.e., the listed price to the consumer of ¥344,050 + the Chinese subsidy of ¥20,250 = ¥366,550). However, today, the price TSLA is collecting on each Model 3 LR MIC sold is ¥344,050, or -6.1% less than it was collecting yesterday (Ex. 1).

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In short, we glean three key takeaways from the above developments, including:

  1. This will be a significant drag on TSLA’s 3Q20 margins (although we haven’t seen any media outlets yet cover this [material] development to the company’s forward outlook);
  2. In addition to TSLA’s production exceeding deliveries in 2Q20 by 3.673K cars (Ex. 2) – showing demand is less than what it produced – as well as its cars appearing in a liquidation channel at fire sale prices in China yesterday (link), this morning TSLA cut the price for its most popular car by -6.1% — as our readers are well aware, today’s price cut follows the 5/1/20 -9.9% price cut TSLA implemented for its M3 SR+ car; at risk of stating the obvious, we believe TSLA has a major demand problem in the market that nearly 100% of pundits deem its “growth opportunity”; and
  3. For the Wall Street “investors” simply looking at TSLA’s perpetual pictures/renderings of its yet-to-be-built plants to support their growth projections (every auto-maker has plants, and does not call them “giga” even though they produce more cars in roughly two weeks than TSLA does all year), as well as E. Musk’s tweets, and not focusing on the actual company fundamentals, we now see elevated risk to TSLA’s automotive results disappointing Consensus.

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CONCLUSION. While we expect TSLA to report a profit today after the close, demand for its cars in China, when taking the aggregate of the above into consideration, is in free-fall. In short, were this consensus thinking among the many professional investors who currently own TSLA’s stock, we believe the optimism currently underpinning the company’s current outlook would quickly turn to concern. While we continue to be cast in the media as “TSLA’s biggest bears”, we are simply producing real-time fundamental analysis on the company, rather than touting a product 1-20yrs out – i.e., cybertruck, semi, roadster, robotaxis, nuralink, etc. – that E. Musk is tweeting about (as many of our peers on the sell-side seem to do incessantly).

While TSLA’s stock is currently detached from reality, and thus a dangerous short, as investors are forced to re-focus on fundamentals (i.e., after S&P 500 inclusion), and do “real work” on the actual outlook for the products (i.e., cars) TSLA currently sells, we see outsized risk to TSLA’s share price coming under intense selling pressure – i.e., when investors realize what they actually own in TSLA.


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