Analysis: Tesla may face its toughest challenges yet as the economy slows

SAN FRANCISCO, Oct. 4 (Reuters) – In July, Tesla (TSLA.O) CEO Elon Musk said the electric car maker had no problem with customer demand, just a problem making and shipping all of the consumers’ Model Ys and Model 3s they were willing to buy.

This may no longer be true.

Analysts are seeing early warning signs for the world’s most important auto maker, including its increasingly premium prices, at a time when the global economy is slowing and expectations for global auto sales are waning.

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Tesla has weathered supply chain challenges better than most of its competitors and analysts expect it will post solid growth over the next year as production expands, but there are also indications it is having to respond to a tougher market.

The most pressing concern is that Tesla made more than 22,000 more electric vehicles than it delivered to customers in the third quarter, data released this week showed. This is the first time you have had to finance so many cars in stock.

For most of the past three years, Tesla has been selling more electric vehicles in a quarter than it can produce. The only notable exception was in early 2020 when COVID disrupted deliveries.

While Tesla’s numbers remain low, construction inventory has historically been an indicator of automakers’ down cycle, leading to cuts in previous downturns of the kind that Tesla hasn’t faced yet.

Tesla blamed transportation issues for a total delivery that didn’t live up to Wall Street expectations.

If Tesla needs to hold more inventory in the coming quarters to facilitate deliveries and avoid the usual quarter-end rush, that would add to the $1.2 billion of undelivered vehicles it held at the end of the second quarter.

Analysts believe Tesla still has more demand than it can supply, which is the underlying assumption behind its aggressive expansion plan over the next year as production ramps up at plants in Shanghai, Berlin and Austin, Texas.

Adam Jonas, an analyst at Morgan Stanley, said he believes Tesla does not have an immediate demand problem, but added caution about pricing and Tesla’s ability to weather the economic cycle.

“It would be unreasonable to assume that there is: (a) a limit to how much Tesla can continue to increase prices without suffering demand and (b) that the company has not experienced slower macroeconomic growth,” he said in a research note. .

Tesla’s average car deal price jumped 31% to $69,831 in August, compared to $53,132 at the start of 2021, according to Kelly Blue Book. It outpaced that industry-wide price increase for new cars by 18% to $48,301 over the same period.

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The waiting time Tesla customers face between order and delivery has also decreased in both the United States and China, Tesla’s largest markets. In China, this delay, one of the indicators of the balance of supply and demand, has been reduced four times since August to at least a week for delivery.

Tesla, which has resisted marketing and incentives, has offered Chinese buyers a rebate of 8,000 yuan ($1,100) if they take delivery before the end of September.

Musk himself said in July that Tesla prices had reached “embarrassing levels” and that “demand falls off a cliff” when prices rise to an “arbitrarily high level”.

As Tesla pushes to expand its own capacity, it is entering a wave of new EV competition, particularly in China from the likes of BYD.(002594.SZ)New (9866.HK) and Xpeng(9868.HK).

The Tesla production plan, which was reported by Reuters last week, before announcing delivery in the third quarter, showed that the company’s detailed plan to operate and its factories to reach production growth of 50% this year and next, a goal that exceeds the most optimistic external expectations.

The question will be whether and how Tesla sees the shifting balance of supply and demand will be pivotal to investors when the company reports quarterly results on October 19.

Musk offers a sophisticated view of economic risk. In June, he told Tesla employees he had a “very bad feeling” about the economy, a reason he cited for stopping hiring at the time. In August, he told investors he expects a “moderate recession” that could last up to 18 months.

Sam Abuelsamid, an analyst at Guidehouse Insights, said Tesla needs to ramp up production from its newer plants in Austin and Berlin. Musk had earlier compared the start of production in those factories to “giant money furnaces.”

“Tesla could end up facing some financial challenges in the third and fourth quarters (from 2023), if these factories continue to be underutilized,” said Abul Samid.

Fitch Solutions, which provides research on Qatari risks and industries, said Tuesday it expects global auto sales to decline 5.4% in 2022, before recovering only partially in 2023.

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(Reporting by Hyunjo Jin; Editing by Kevin Kroliky and Nick Ziminski)

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