Tesla has now announced the production and sales units for the second quarter of 2020, April to June. These mid-pandemic numbers exceeded the expectations of even the most optimistic analysts and the share price immediately jumped approximately 8% to reach all-time highs of about 1200 USD.
Tesla does not break down the numbers per region, simply giving out production and delivery volumes for both vehicle families (S and X as one, 3 and Y as the other).
These numbers represent a drop of about 5% compared to 2019’s equivalent 3-month period. Such results would normally be a very bad news for any manufacturer, let alone for a company supposed to be on an exponential rise. But COVID-19 had other plans for 2020, so this drop must be compared to other manufacturers in the same time period. In that light, it’s much less dark.
- GM: -34%
- Toyota: -35%
- FCA: -39%
- Honda: -28%
- Nissan: -50%
BMW, Mercedes and Audi (part of VW Group) have not yet released official numbers for Q2. These will be more representative of the current market Tesla competes in. Their -5% performance will either be seen as a deception if these 3 are above 0%, or absolutely fabulous if they are in line with the rest of the industry.
But, if the USA can be any indication, goodcarbycar provides a chart tracking US deliveries and all brands are in significant negative numbers. Even if Tesla was just slightly below 0%, they would still fair vastly better than any other vehicle manufacturer.
The Cult, The New Gigafactories and The Good Fortune
So what does that mean?
First it means customers trust Tesla more than other brands. In the middle of a pandemic where people have been heavily restricted to move around, where businesses were physically closed and where the petrol price on the open market and at the pump dived to historical lows, the people who still bough new cars did not avoid Tesla’s somewhat expensive vehicles. They actually seem to have singled them out as the one brand that is worth their investment. Tesla quickly adapted to contact-less deliveries, making small adjustments to their already very digital processes. Many other manufacturers could only watch from the sidelines.
Second, it means Tesla has succeeded in both ramping up production in Shanghai and most importantly, being desired as a brand in China. Even with the fierce and cheap competition not found anywhere else. The US-Fremont factory has been closed in Q2, putting a severe halt to production on the new continent. That Tesla could match the previous’s year production levels means their operations in China has at least compensated for that. Given the very short time since the first deliveries at the very end of 2019, it looks like their recipe for quick and efficient manufacturing and delivery is proven. Let’s see if they can pull it off in Berlin, Germany.
Third, it means Tesla got very lucky. On one hand, some will remember them doing a capital raise just as COVID was warming up in China, raising 2 billion USD at their pre-pandemic highs of 800$ per share. The stock crashed within weeks to 450$. Free money before tough times always helps.
On the other hand, in their Q1-2020 letter, Tesla said they produced significantly more cars than they delivered, a first in many quarters. While they expected to keep this trend to build up inventory and allow for better availability of all models, the production freeze made that impossible. Luckily, this temporary extra buffer proved invaluable to mitigate the Q2 production cuts. But now that it is pretty much depleted, new vehicles will need to be made and shipped in time for Q3. Tesla’s execution in terms of production volume and quality will be critical.
Production Hell v2.020
This will prove an unexpected challenge. Tesla is low in inventory. Very low and everywhere. Europe is hit in particular, not yet having its own production facility. The moment Fremont usually produces cars destined for EU is exactly when things stopped. Some countries like Switzerland still show zero currently available cars across all models on the website, whether used or new. At a time where competitors like the VW ID.3, Audi e-tron and Mercedes EQC are trying to get a firmer grip on the growing EV market, having cars available is fundamental for Tesla.
Lastly, with the new German regulations heavily favoring electrified vehicles at the same time as VW is testing out a first batch of its mass-market ID3., Tesla needs to push the Berlin factory as fast as possible before the proud Germans turn to any of their national brands for EVs. Tesla’s Market absence, production challenges and shipping delays could not be better gifts for VW, who wishes to launch their ID.3 in September to the public. There is no doubt that, once their own challenges are ironed out, they will put the pedal to the floor and generate the (marketing) noise that their electric vehicles don’t.
And this is what they are very experienced at.
Tesla has survived Q2-2020 with a mix of luck and great execution. Both of which will also be required to keep that trend going.
The latter even more so.