Tesla Set A Delivery Record But It's Still Not Enough For Wall Street

Tesla hit an important milestone but still fell slightly short of analyst predictions, public and private entities alike want the UAW vs. General Motors strike to come to an end, and Brexit remains very bad for the UK. All this and more in The Morning Shift for Friday, October 4, 2019.

Both Wall Street and Elon Musk had high hopes for prospective Tesla sales; third-quarter performance was expected to top 100,000 cars. That didn't happen, a Tesla press release showed—but that still meant Tesla set itself a new record for quarterly sales. It was better than Q2, but still a few thousand short of the desired 100,000 mark.

The Verge has more:

Tesla delivered "approximately 97,000" cars around the world in the third quarter of 2019, slightly edging out the previous record of 95,356 the company set in the second quarter... That brings Tesla's delivery total for the year up to around 255,000 vehicles, meaning the company has already shipped more cars in 2019 than it did all of last year.

But it also means Tesla needs to set another record in the fourth quarter (and then some) if it wants to reach the low end of the estimate it offered at the beginning of the year, which was that the Silicon Valley automaker would deliver between 360,000 and 400,000 cars in 2019. Tesla is expected to start production at its third Gigafactory in China by the end of the year, which could help the company meet that goal.

Things still look relatively good for Tesla. Sales aren't dropping, which is a solid sign in and of itself—there's still a chance that the automaker could set another record fourth quarter.

Still, Wall Street isn't impressed, and that's having consequences. From The Los Angeles Times:

In the hour after Tesla announced its numbers, its stock price fell as much as 6%. It was down 3% at 5:30 p.m. EDT. The company has a market value of $43 billion.

"Reaching its production goals will be a Herculean task," said Wedbush analyst Dan Ives. "Tesla needs to catalyze demand."

[...]

"When Elon Musk says they are aiming for 100,000 deliveries, you are hoping for 102,000. Not 97,000," Gene Munster, a managing partner at venture capital firm Loup Ventures, said in an interview with Bloomberg. "This is a credibility hit. This is a textbook example of Elon not being disciplined and having difficulty managing expectations."

Venture capitalists! Will they ever be happy? (No.)

There's also this problem of the Model 3 being the new hotness, but not the car that brings in the margins:

While deliveries rose, the company faces revenue and margin problems. The aging Model S sedan and Model X SUV — whose prices can easily exceed $100,000 — deliver higher profit margins than the Model 3. As the less expensive Model 3 gains favor against the S and X, the company's average selling price declines, affecting revenue growth. According to Factset, Tesla's average selling price for all models declined from $97,600 in December 2018 to $55,600 in this year's second quarter.

Interestingly, Tesla chose not to include its finances in its recent press release, so we can't know if the company is actually turning a profit with all these record sales. As The Verge notes, the company lost $408 million in Q2 and $702 million in Q1; the former had a deliver rate more on par with what we just saw.

As the UAW vs. GM strike powers on, the higher-ups are starting to get antsy. Specifically New York State's Comptroller Thomas DiNapoli, who has worries about the New York pension fund's 3.8 million GM shares.

From Automotive News:

Crain's New York Business, an affiliate of Automotive News, obtained an Oct. 1 letter DiNapoli sent to GM CEO Mary Barra voicing concerns about the strike, which began 18 days ago, and how it might impact the New York pension fund's 3.8 million GM shares. Both the company and the union have signaled significant advancements in the ongoing negotiations over a new contract, in which GM has offered raises and payouts to its employees in exchange for the ability to employ workers on a "temporary" basis for years at a time.

[...]

"As an investor, I am concerned about reports estimating the Company's lost earnings between $50 and $100 million per day during the strike," he wrote, noting that a two-month-long labor battle in 1998 cost the company $2 billion. "It is conceivable this strike could similarly cause significant losses unless a resolution is quickly reached."

DiNapoli has been a supporter of the UAW in the past, and his concern here can be identified as worry for New York's retirement system. He's urged GM to maintain and enlarge its US-based operations, and to get around to wrapping up those negotiations as quickly as possible.

The full letter can be accessed here.

Not everyone is praying for an end to the strike out of the goodness of their hearts, though. Both people and companies are, after all, losing money here. Canada's Linamar Corp., a parts supplier for GM, has been bleeding cash since it began. Specifically, up to $750,000 per day, Automotive News reports.

Here's more from the article:

"The resultant decline in GM orders are currently estimated to impact Linamar earnings at a rate of up to $1M CAD [per] day ($750,000 USD) of strike," the supplier told investors in a post on its website.

Linamar didn't say which parts it supplies to GM vehicles.

[...]

Linamar on Thursday also warned that global light-vehicle production in the third quarter through year-end is expected to be down from the company's previous June forecast.

Linamar isn't necessarily working from a DiNapoli standpoint by asking GM to hurry up and negotiate a much better contract. It's opted for a more business-centric standpoint, illustrating the spiderweb effect that can happen when one member of an industrial complex falls out of action. You have to wonder how many other companies are seeing similar rates of financial attrition.

Big bad Brexit is proving to be one hell of a disaster for the automotive industry. We've talked about it before, but every month the sales figure just keep reaffirming that, yes, everything does in fact suck.

This week's reminder comes from Bloomberg:

U.K. car sales lagged other major European markets in September as consumers hold back on purchases due to uncertainty surrounding Brexit.

Last month's 1.3% increase, driven by fleet demand rather than consumers, fell short of predictions, the Society of Motor Manufacturers and Traders lobby group said Friday. France and Germany posted 17% and 22% growth. Year-to-date registrations in the U.K. fell 2.5%.

"We expected to see a more significant increase in September, similar to those seen in France, Germany, Italy and Spain," SMMT Chief Executive Mike Hawes said in the statement. "Instead, consumer confidence is being undermined by political and economic uncertainty."

It makes sense. When the world around you is in turmoil, most people are going to be thinking about more important things than, y'know, buying a car.

And things are likely to get even worse as the actual deadline for a Brexit decision creeps up on us. Not only will people be less inclined to buy, but automakers will likely struggle to produce.

There was one shining beacon of hope, though, and that seems to be electric cars:

Battery-driven car sales more than tripled to 7,704 units in September, driven by deliveries of models including the Tesla Model 3 and Nissan Leaf. Plug-in hybrids sales grew a more modest 23%, according to data from the group.

The future might be bleak, but at least it will be electric.

Speaking of electric vehicles, Volkswagen Group is chatting to other automakers about pooling its EV technology knowledge to create more efficient vehicles, Automotive News reports.

It would be a great step forward in advancing the market. Automakers willing to share info won't have to do all that separate research, design, testing, and production alone—there could instead be a team of manufacturers working in unison.

From the article:

"Given the huge research and development investment required for the transition to battery-electric vehicles, many smaller luxury names could be interested including Aston Martin, McLaren and Maserati," Bloomberg Intelligence analyst Michael Dean said. "You couldn't rule out BMW and Mercedes-Benz, which would provide a German premium solution," he added.

[...]

Deals to share electric expertise are already advancing, with Ford Motor Co. agreeing earlier this year to use VW's main electric-car platform for a high-volume car in Europe. The pact is worth between $10 billion and $20 billion over six years and the manufacturers are in talks over adding a second model that would be based on VW technology.

If the auto industry is planning to go on electric any time soon, this might just be the most economical and most efficient means of developing the necessary technology.

There's a solid chance that we're all going to be hit by a downturn sometime in the near future. Will that influence your buying and/or driving choices?