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Investor's Corner

Concerns about Tesla’s (TSLA) alleged ‘demand problem’ are likely overblown

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7 years ago

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The past few months have not been kind to Tesla stock (NASDAQ:TSLA). Following the company’s lower-than-expected production and delivery figures from the first quarter, the negative narrative surrounding Tesla has gone on overdrive. At the forefront of this is a thesis that the electric car maker’s critics have been pushing: Tesla has a demand problem.

This particular point has spread like wildfire, particularly over the past few weeks. Analysts that recently downgraded TSLA stock would reference weak demand for the Model 3, and bears would echo the same assumption during segments in mainstream media. While this narrative is compelling in the way that it appears to be a foreshadowing of Tesla’s eventual demise, the demand problem thesis is at best inaccurate and at worst flat-out wrong, simply because one can’t base a thesis in one data point.

TSLA investor @Incentives101, an economist with a background in macro research, notes that there is a considerable misconception surrounding Tesla’s Q1 results and how it relates to the demand for the company’s electric cars. In a conversation with Teslarati, the investor explained that while it is easy to make assumptions based on Tesla’s Q1 2019 figures, there is simply not enough data to accurately and responsibly forecast Model 3 (and in extension, Model S and X) demand. Tesla’s Q1 2019 data is nevertheless useful, as it reveals a series of factors that could shed light on what is happening to the electric car maker.

Tesla Gigafactory 1, where Model 3 battery cells are produced. (Photo: Tesla)

Shocks, Backlogs, and Demand

The economist notes that demand shocks could be transitory or permanent. Taxes, for example, normally have a permanent effect and natural disasters have a transitory one. But these shocks have different effects over time depending on whether a shock is sudden or expected. Understanding how demand normally reacts to these shocks is very important, as it provides clues at what could be expected to make informed assumptions about Q1. When a shock such as a federal tax credit reduction comes, for example, its effect happens in three stages — given that consumers knew it was coming. Before the shock hits, demand generally increases (pulling demand), followed by a period where demand decreases by more than what could be considered a new equilibrium. Following these is another period where demand increases to reach a new equilibrium. Q1 most likely was the worst part of the second stage.

The backlog of Model 3 reservations was primarily used as a point against Tesla by critics, with an assumption suggesting that there will be no demand for the vehicle after the company clears out its initial batch of reservations. The economist argued that while Tesla’s backlog is widely believed to be a factor impacting demand, such a factor would likely not be relevant in the bigger picture. “Given the characteristics of auto demand (it recycles constantly, consumers preferences are well understood, and trends are clear) a ‘backlog’ has the same effect as a natural disaster if you really want to compare it to something. If the backlog happens at the same time as a tax shock or other shocks, it just exacerbates the move. The duration of the shock could be discussed, but in the end, the effect of the backlog is just irrelevant,” the investor said.

Tesla faced a number of shocks in the US auto market in recent months, and these could be translated into inaccurate assumptions. Among these are negative shocks such as the reduced federal tax credit, the “end” of the Model 3 reservation backlog, seasonality, and supply; as well as positive shocks like price reductions on the company’s vehicle lineup.

“There are some main conclusions that one can infer from the data: 1) There isn’t information available to know what the initial equilibrium was. The exponential shape of the curve gives no reference whatsoever to know this. Comparing Model S/X vs. Model 3, is easy to see that S/X had a stable path which would make it easier to measure the impact of these type of shocks; 2) Over time, the shock will be (almost) totally explained by the reduction in supply; 3) Shocks were expected, and price adjustments should more than cancel any negative permanent shock that taxes would have; and 4) Tesla had really bad luck with all these things happening at the same time,” the economist remarked.

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The Tesla Model 3 production line. (Photo: Tesla)

Consumer Preferences

Based on these data, one can infer that the primary constraint that Tesla is facing is not demand, but supply. Demand for the company’s vehicles is not exclusive to the United States auto market. It is global, and in this sense, there is simply no indication that global supply for Tesla’s electric cars is already meeting global demand. The investor noted that the effect of the “backlog” argument in global markets would likely be marginal and transitory, and just as demand is not static, supply and prices have not been either.

Ultimately, the most significant factor that would affect the demand for Tesla’s vehicles is consumer preferences. In recent years, consumer preferences are changing in favor of smart devices, and this cascades into the auto industry. Tesla’s electric cars, which are arguably the most tech-focused consumer vehicles on the road today, are a perfect fit for this changing landscape.

According to the economist, “Consumer preferences and regulation actually affect demand. Prices technically don’t affect demand — just the quantity demanded — and the trend shows that it will have a multiplier effect. It’s always important to ask the correct questions, and the question today is not what are they doing to ‘fix’ a transitory shock? Or where’s demand? The question is, how will you increase supply?”

Alleged ‘Cannibalization’ of the Model S and X by the Model 3

In terms of the alleged cannibalization of Model S and X sales by the Model 3, the investor notes that there is no reason, at least at present, to believe that cannibalization is actually happening. Tesla Model 3 sales increased while Model S and X remained in their path, and as sales of the flagship sedan and SUV decreased, Model 3 sales in the US decreased as well.

“Even if you disaggregate data to try to find signs of cannibalization, there’s still no proof. There’s only one market — Norway — that is big enough, that has reliable data and didn’t face any distortions (tax or subsidy), that could give us any insight about cannibalization. Without further information, it would seem that there was significant cannibalization. The only problem is that Tesla distorted the market by eliminating the most popular Model S and X variant (75kWh), which was, on average 70%+ of sales. It is simply impossible to know which effect (the Model 3’s introduction or the 75kWh variant’s elimination) had the biggest impact, or even measure them in any way. And even then, one market may not be enough to prove it,” the investor stated.

Ultimately, the continuing phase-out period of the federal tax credit in the US would likely affect Model S and X sales in the country. But similar to the Model 3, these effects will likely be transitory and not permanent, especially given that prices have changed accordingly, given that the vehicles have better value per dollar. As with the Model 3, the sharp decrease in Model S and X sales in Q1 2019 could be explained by supply changes in its totality. Thus, demand should return to its previous path after a short period of time.

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

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Simon is an experienced automotive reporter with a passion for electric cars and clean energy. Fascinated by the world envisioned by Elon Musk, he hopes to make it to Mars (at least as a tourist) someday. For stories or tips--or even to just say a simple hello--send a message to his email, simon@teslarati.com or his handle on X, @ResidentSponge.

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Elon Musk

Elon Musk and Trump are closer than ever, and Tesla could be the big winner

Elon Musk sat beside Trump as AI leaders signed a voluntary White House safety accord.

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2 days ago

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September 29, 2026

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Elon Musk had the seat right next to President Donald Trump on Tuesday as the White House hosted the leaders of America’s biggest artificial intelligence companies for a lunch that ended with a voluntary industry accord on AI safety.

A seating chart Trump posted on Truth Social placed Musk at the president’s left in the East Room, with Nvidia CEO Jensen Huang on his right, according to an Associated Press reporter. Anthropic CEO Dario Amodei, OpenAI President Greg Brockman, Meta’s Mark Zuckerberg, Google’s Sundar Pichai, Microsoft’s Satya Nadella and Amazon founder Jeff Bezos also attended, along with Vice President JD Vance and House Speaker Mike Johnson.

After the lunch, Trump told reporters outside the West Wing that the executives had signed “The White House Accord on Superintelligence: A Joint Commitment on Frontier SI Responsibilities.” Johnson described it as a voluntary statement of principles built on “robust internal controls and layers of internal and external review,” while Zuckerberg said company boards would independently review reports from outside auditors. Trump called the document “morally binding,” said he would name a new AI czar within days, and signed an executive order formally renaming artificial intelligence “super intelligence,” CNBC reported.

Musk was not in the room for Tesla alone. Since SpaceX absorbed xAI, he runs the company behind Grok and one of the largest AI training operations anywhere. On September 25, he said another 220,000 Nvidia GB300 chips would come online at Colossus 2 within a week, with more expected in November and December.

SpaceX confirms third massive compute deal at Colossus data center

 

Musk also used the trip to restate his energy ambitions. “SpaceX is aiming together with Tesla to do 200 gigawatts of solar production per year,” he said at an event in Washington. It is the same combined target he laid out that feeds directly into Terafab, the Tesla and SpaceX chip venture that will need enormous amounts of power.

The showing between Musk and Trump has come a long way, since the two had the very public split in mid 2025 after Musk opposed the “Big Beautiful Bill” and left DOGE. They reconciled at Charlie Kirk’s memorial that September, and Trump later called their relationship “good”. Since then, Musk has joined Trump’s China delegation in May and attended last week’s White House state dinner for Chinese President Xi Jinping.

For Tesla, that access to government official could pay dividends. As Teslarati noted in January, federal autonomy rules, NHTSA oversight and a single national standard for driverless vehicles all run through an administration Musk can more easily reach directly as Tesla works to scale Robotaxi and Cybercab beyond Texas.

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Investor's Corner

Tesla showrooms picked clean ahead of Q3 end as demand looks strong

Published

2 days ago

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September 29, 2026

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Credit: @thaichiminh1907/X

Tesla (NASDAQ: TSLA) showrooms have been picked clean ahead of the end of the third quarter of the year, as demand looks to be strong and delivery estimates for new vehicles are pushed into late 2026 and early 2027.

Tesla appears to have sold out of many of its Model 3 and Model Y trim levels in the United States, as only the Model Y RWD and Model Y All-Wheel-Drive are available for delivery before the end of the year.

Additionally, many showrooms are either completely empty or void of all but just one demo unit within the buildings themselves in an effort to bolster what could be one of Tesla’s best quarters in vehicle deliveries in recent memory.

Additionally, when I spoke to the guys at Tesla Mechanicsburg two weeks ago, when I returned the Model Y L, their third hauler of the week had just arrived, and every vehicle on it, along with every vehicle in their delivery lot, was accounted for and had a name attached to it for delivery.

Tesla saw a 25 percent increase in deliveries in Q2 compared to the same quarter the year before. The vast majority of the 480,126 units it delivered, 467,762 vehicles to be exact, were the Model 3 and Model Y.

In Q3 2025, Tesla delivered 497,099 vehicles, once again a figure that was dominated by the company’s two mass-market vehicles. Analysts have unusually wide predictions for this quarter, likely because so many firms missed the Q2 delivery figure by such a substantial margin; Wall Street predicted 408,000 cars, while Tesla delivered 480,000.

Goldman Sachs has Tesla slotted for 435,000 deliveries in Q3, while JPMorgan said it anticipates 482,000. The median guess is about 449,000 deliveries for Q3.

Interested in ordering a Tesla? Use my referral code for three free months of Full Self-Driving (Supervised) here.

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Elon Musk

SpaceX turned a heralding moment for Starship into its greatest

Starship reached orbit despite losing an engine, deployed 26 Starlink V3 satellites on Flight 14.

Published

3 days ago

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September 28, 2026

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SpaceX’s Starship reached orbit for the first time on Monday, and for a few nail-biting minutes it looked like it wouldn’t. During ascent on Flight 14, one of Ship 41’s six Raptor engines shut down early, and SpaceX’s livestream host Dan Huot told viewers the team had decided not to commit to orbit. Minutes later, after what Huot described as a lot of conversation in the control room, the final poll came back in favor, and a roughly 19 second burn of a single Raptor pushed the ship into orbit about 170 miles up.

The reversal matters because SpaceX had written the exit ramp into the mission plan. The company said it would only fire the orbital insertion burn if flight controllers confirmed enough backup hardware remained for the deorbit burn, a condition Teslarati laid out ahead of the flight. Losing an engine was exactly the scenario that rule was built for.

Pressing forward fits Elon Musk’s history. Falcon 1 failed three straight times before its fourth launch reached orbit in 2008, with SpaceX nearly out of money, and Starship was developed by flying prototypes until they broke. What changed this year SpaceX going public, and with $SPCX sliding below its IPO price in July when Flight 13 slipped, the short interest climbed significantly, as Teslarati reported at the time. A Starship potentially lost today with revenue generating next-gen Starlink satellites aboard would have landed directly on shareholders.

That pressure showed up after orbit. SpaceX cut a flight planned to last nearly 10 hours to about three, moving splashdown from west of Chile to the North Pacific near Hawaii. SpaceX gave no reason, though Musk said this month the company was being extremely cautious about debris risk. The single Raptor for deorbit worked, and Ship 41 completed its flip and landing burn before breaking apart in the water, an outcome SpaceX expected. Musk has structured SpaceX’s governance to shield long term bets from market pressure.

The payload is the bigger business story. Musk posted that all 26 Starlink V3 satellites deployed and are “operating nominally.” Each V3 is rated for about 1 Tbps of downlink and 160 Gbps of uplink, so this single launch adds roughly 26 Tbps, about 10 times what a Falcon 9 load of V2 Mini satellites adds. The V3 is too large for Falcon 9, making Starship the only vehicle that can build out the planned 100,000 satellite constellation, at up to 60 per flight once it reaches routine service. Unlike the 20 V3 units on Flight 13, which reentered on a suborbital path, these will raise their orbits and could begin serving customers within weeks and bring in hundreds of millions of additional dollars in projected Starlink revenue.

SpaceX has already begun winding down Falcon 9 Starlink launches from Florida in favor of Starship. Reported targets put Flight 15 as early as October 19, leaving about three weeks to diagnose Monday’s engine shutdown before the next orbital attempt.

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