We have now had clarification of the actual production numbers that came out of China,
this number can certainly shine a lot more light on what is going on with demand for
Teslas in Q3, along with more information in other areas of the business.
I love it when we have numbers to work with, in case you couldn't tell.
Rob from Tesla Daily is reporting that 82,000 vehicles were produced in Shanghai in September.
So let's go through what it means for demand, production, and potentially Q4.
INCREASE The highest production month in China to date
before was 71,000 vehicles in June. 82,000 is 11,000 more, which is a 15% increase in
production since the line upgrade.
We heard these line upgrade might be closer to 40% increase in production, and were expecting
possibly as high as 100,000 vehicles produced in a month.
Even TroyTeslike on Twitter at one stage expected 100,000 for September.
But it wasn't a totally smooth sailing month, there were some production pauses due to energy
shortages, and a few other issues too.
The latest we have heard is that the production rate has increased by 30% to 14,000 Model
Ys and 8,000 Model 3s a week, which is 94,000 to 97,000 a month.
I mean I am happy with that, its a great number, no complaints.
Apparently Tesla did attempt this rate, but it was too hard for the workers with just
3 shifts, and they supposedly would need to add a fourth shift to hit these full capacity
numbers.
In the meantime, supposedly production will be limited to 13,000 Model Ys and 7,500 Model
3s a week, or 87 to 91,000 a month.
I had kind of speculated around 270,000 with a hopeful 290,000 before.
I don't know if Tesla will try and push extra hard for Q4 or not.
But I am not complaining about 270,000.
These line upgrades are a bonus anyway.
Still let's acknowledge that when we are at 14,000 Model Ys a week, then that is very
close to 3 times volume production.
3 times!
Or 728,000 a year.
The economies of scale that come from making that many vehicles from one line, reduce costs
and increase margins that much more, especially when most of the competition are struggling
to hit 1/5 that rate.
Is it possible with the new manufacturing processes at the new factories could reach
one million a year capacity on those lines, perhaps after a few years of ramping and refining?
DEMAND Anyway, we now have all the China figures,
so we can try and see if there are potential issues with demand.
Tesla's wholesale figure was 83,000, and they produced 82,000.
That wholesale figure factors in the number of vehicles delivered in China, and the number
of vehicles exported out of China.
Even if the vehicles are not sold in Europe, Australia or wherever, they still count as
wholesale, however if the vehicles are not delivered in China or end up in inventory,
they do not count as wholesale vehicles.
Firstly you might notice that Tesla sold and exported 1,000 more vehicles than they made,
this is due to vehicles that were produced in August, but not delivered until September,
so there was a slight overlap there, likewise there will also be cars that were produced
in September, and wont be delivered until October.
Think about a car coming off the production line on the last day of the month, they aren't
going to reach their destination on time.
Or likely the last few days or so.
Therefore there is always some sort of overlap, and we don't know exactly, but the difference
in overlap from August to September was 1,000 additional units.
Let's go through our numbers then.
Tesla sold over 77,000 domestically in China for the month.
So what can we tell as far as demand is concerned here?
Well we had people speculating that these 22,000 missed deliveries, i.e. the difference
from production and deliveries, were due to demand reducing in China.
But as we can see, Tesla actually have a higher export amount of vehicles from China, than
they actually produced, so this is clearly not the case.
Some people were saying that Telsa exported about 15,000 of these vehicles and were on
boats, because demand in China dried up, and Tesla had to export the remaining vehicles.
But we know now that only 5,000 were exported.
So if demand had dried up, for lack of better word, then it was 1/3 fewer cars that had
to be exported, then people were saying.
But again so what?
It's not even that demand would have dried up, its that supply would have started to
catch up, as Tesla just ramped up their production.
And besides, where do you think these vehicles that are being exported are headed?
That's right, they go to other Tesla customers who also ordered a Tesla, and have been waiting
for perhaps 6 months.
Tesla has a lot of demand in China, they also produce in China.
So isn't it smart to ramp up your production there, and meet all the local demand, then
export the excess demand you have?
Especially when your profit is higher for the local sales.
This demand has dried up theory is also further exacerbated by the fact that the economy is
not looking great and overall auto demand will dry up, and if you are selling luxury
EVs then you are in real trouble.
But in a previous video I compared the price of a Model Y to a Volkswagen Taureg and BMW
x3, in Germany, and we discovered the Model Y is a much lower cost car, sure you have
to factor in the fuel savings too for the VW, but still, this is not what I classify
as a luxury priced car.
I think this extends from consumers in the US who want a Model Y Long Range in the US,
and they have been so popular there, Tesla had to raise prices, and on top of that they
are very supply constrained still.
And as a result, Tesla now has a label of luxury SUV.
And then in a down economy, people can't afford a "luxury SUV".
But a RWD Model Y is great a value car.
On top of that they also think that because BYD managed to ramp up so much, that has eaten
Tesla's market share, and by extension their sales.
Not to mention the influx of all these other new Tesla competitors, which are in very low
production still, and I doubt compare to anything like a Tesla.
But you can make headlines that are true, that say, half a dozen new Tesla competitors
released, BYD overtake Tesla on NEV sales, Tesla's market share decreases.
And remember a lot of this market share stuff is based of the Q2 numbers, when Tesla was
in lock down.
Then accompany that with demand dropping for luxury SUVs in a recession, and it's going
to scare people.
But that's what I do, I look into all these, to analyze it and find out what is really
happening.
Also I have checked the China inventory for Teslas, there are no new Teslas for sale in
the entire country, and only about 30 used Model Ys.
Does that sound like a demand problem?
INSURANCE Then Tesla offered 8,000 Yuan off your insurance
if you buy a Model Y, which they have now reduced to 7,000 Yuan, and extended it until
the end of the year.
Tesla are getting so desperate they are offering a subsidy on insurance of around $1,000.
That has now been inferred as a serious drop in demand.
Add to that rumors that Tesla were cutting their price by 40,000 Yuan, or over $5,000,
back to the old price they used to have, you know when they still made 30% margin.
There is absolutely no truth to this rumor, but obviously if consumers believed it, then
it would deter some from purchasing, as that is a big price saving.
When I bought my wife's Model 3, we got about a US$5,000 government subsidy, this was about
a 12% discount, and it probably did influence my buying decision, consumers are very price
sensitive when it comes to cars, even a few thousand dollars makes a big difference, and
can attract a lot of new buyers.
But I am not here saying to you oh Tesla has no demand problem, they can charge whatever
they want, and will have unlimited demand.
I am saying that it is possible that Tesla have currently fulfilled their local demand
in China by ramping up the supply enough at the existing price point.
And now any excess vehicles will be exported.
However, Tesla make more profit selling domestically, so perhaps they are now trying to encourage
that fraction extra with insurance subsidies to meet demand, in a still more profitable
market.
This rumor however is perhaps somewhat of a self fulfilling prophecy, but I actually
don't think Tesla will cut prices this year.
If they actually do need to cut prices I think it will be closer to 17,000 Yuan, not 40,000
Yuan, which will end up being an actual saving of 28,000 Yuan, as they then hit the Chinese
EV subsidy threshold.
This price point will then mean they profit about as much as exports as domestic sales,
so Tesla won't care as much about pushing domestic sales, as there is little difference
in profit.
And I have no problem with Tesla dropping prices, I am fully aware of what supply and
demand means and how it is controlled with price.
Adam Smith brought this up as far back as 1776.
It's been well established.
OTHER FACTORIES Of course there is another factor due to Tesla's
Shanghai production being lower than expected, well it doesn't change the total production
numbers, which would also mean that the other factories have actually ramped up more than
we expected too, I am thinking this could be Fremont.
I will revise my delivery numbers and then should have an earnings estimate for Q3 early
next week.
SUMMARY So although the Shanghai production numbers
were a little lower than I would have liked, but seeing that there was also not a huge
amount produced, and no excess of unsold vehicles, or hug amount having to be exported, assures
us, that Tesla is still very much in demand.
A Model Y price drop, if Tesla are selling 100,000 Model Ys in China would only result
in about 150 million dollars less in earnings, or 2.3% drop, not a big deal, but look how
much the stock has over reacted.
Therefore I think as investors we can be happy with demand, and there were reasons production
was not has high as we had hoped too.
Let's hope for a smooth Q4 in production with another record quarter.