Investor's Corner
Tesla’s Model 3 production ramp is here, and the US auto market is starting to feel it
Since hitting its Q2 target of producing 5,000 Model 3 per week, Tesla appears to have accelerated its efforts to build and deliver the electric car to as many reservation holders as possible. The vehicle’s ramp has been anything but smooth over the past year, but now that Tesla is focusing on sustaining its production of the car, it seems like the results of the Model 3 push are finally starting to bear fruit.
Tesla noted in its Q2 2018 production and delivery report that the Model 3 had a line of about 420,000 reservations as of the final week of June. Deliveries of the Model 3 rose steadily since Tesla started ramping the production of the vehicle. Over Q1 and Q2, sales of the electric sedan increased, culminating in July when Tesla is estimated to have sold as many as 14,250 Model 3 in one month.
With such numbers, the Model 3 became the best-selling electric car in the United States in July, bar none. The rise of the Model 3 was so prominent that last month, it was listed as 7th place in GoodCarBadCar‘s list of America’s Top 20 Best Selling Cars, which included gas-powered vehicles like the Toyota Camry and the Honda Civic. These are vehicles that have held their places in the US’s auto industry for years, and the vast majority of them are more affordable than the Model 3.
Yet, despite this, the Model 3’s sales show that more and more people are starting to commit to Tesla’s electric car. In the company’s Q2 2018 earnings call, Tesla global head of sales Robin Ren stated that the top five vehicles being traded in for a Model 3 were rather surprising, as they were comprised of mostly lower-priced cars such as the Toyota Prius, BMW 3 Series, Honda Accord, Honda Civic, and the Nissan Leaf. Among these vehicles, only the BMW 3 Series is an actual competitor in the midsize luxury segment. The other four are from a more affordable price point.
According to Elon Musk, these trends in the sales of the Model 3 suggest that customers are quite open to spending a little bit more than their usual budget to purchase the electric car. This, Musk believes, is encouraging overall.
“It’s just interesting that people are trading up into a Tesla, so they’re choosing to spend more money on a Tesla than their current car, just based on the trade-in values. A Civic is a very inexpensive car compared to particularly the Model 3 today. So that’s promising from a market access standpoint,” Musk said.
Tesla’s Model 3 ramp appears to be well on its way to sustaining the optimum manufacturing level displayed by the company during its “burst production week” at the end of June. Apart from Tesla announcing that it was able to maintain its 5,000/week Model 3 target in “multiple weeks” in July, the company has also registered an astounding 16,000 new Model 3 VINs in a seven-day period this August. That’s a number that took the company roughly eight months to achieve when the vehicle started production in mid-2017.
As the Model 3 continues to make its presence known in the US auto industry, Tesla appears to be looking into expanding the Model 3’s reach to other countries. Deliveries to Canada have already started in Q2, and just recently, Tesla also announced that it would be offering the Model 3 for viewing in Australia and New Zealand. The company also showcased the Model 3 at the 2018 Goodwood Festival of Speed, where it attracted a good deal of attention from the festival’s attendees.
What then, of competing electric vehicles from other manufacturers? The Model 3’s main rival, the well-reviewed Chevy Bolt, has appears to have plateaued its sales in 2018. Estimates of the Chevy Bolt’s sales this year show that the vehicle has likely sold around 1,100-1,700 units every month since January, putting it below the Model 3’s numbers in 2018 so far. By July, the Model 3 is estimated to have outsold the Chevy Bolt EV 12:1.
Particularly notable is that Tesla’s production ramp for the Model 3 is still just halfway towards its actual target. Tesla aims to eventually produce 10,000 Model 3 per week — a pace the company is seeking to achieve sometime next year. It took a very long time for Tesla to build up the Model 3’s lines to produce 5,000 vehicles per week, but with the milestone achieved, it appears that Tesla’s ramp for its most ambitious electric car is going nowhere but up. Once the Model 3 hits 10,000 per week, even America’s top-selling vehicles like the Toyota Camry could start seeing their sales get taken over by Telsa’s electric sedan.
Elon Musk
Tesla locks in Elon Musk’s top problem solver as it enters its most ambitious era
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla has granted Senior Vice President of Automotive Tom Zhu more than 520,000 stock options, tying a significant portion of his compensation to the company’s long-term performance.
The generous equity award was disclosed by the electric vehicle maker in a recent regulatory filing.
Tesla secures top talent
According to a Form 4 filing with the U.S. Securities and Exchange Commission, Tom Zhu received 520,021 stock options with an exercise price of $435.80 per share. Since the award will not fully vest until March 5, 2031, Zhu must remain at Tesla for more than five years to realize the award’s full benefit.
Considering that Tesla shares are currently trading at around the $445 to $450 per share level, Zhu will really only see gains in his equity award if Tesla’s stock price sees a notable rise over the years, as noted in a Sina Finance report.
Still, even at today’s prices, Zhu’s stock award is already worth over $230 million. If Tesla reaches the market cap targets set forth in Elon Musk’s 2025 CEO Performance Award, Zhu would become a billionaire from this equity award alone.
Tesla’s problem solver
Zhu joined Tesla in April 2014 and initially led the company’s Supercharger rollout in China. Later that year, he assumed the leadership of Tesla’s China business, where he played a central role in Tesla’s localization efforts, including expanding retail and service networks, and later, overseeing the development of Gigafactory Shanghai.
Zhu’s efforts helped transform China into one of Tesla’s most important markets and production hubs. In 2023, Tesla promoted Zhu to Senior Vice President of Automotive, placing him among the company’s core global executives and expanding his influence beyond China. He has since garnered a reputation as the company’s problem solver, being tapped by Elon Musk to help ramp Giga Texas’s vehicle production.
With this in mind, Tesla’s recent filing seems to suggest that the company is locking in its top talent as it enters its newest, most ambitious era to date. As could be seen in the targets of Elon Musk’s 2025 pay package, Tesla is now aiming to be the world’s largest company by market cap, and it is aiming to achieve production levels that are unheard of. Zhu’s talents would definitely be of use in this stage of the company’s growth.
Tesla analyst Andrew Percoco of Morgan Stanley teased the company’s dominance in its self-driving initiative, stating that its lead over competitors is “not even close.”
Percoco recently overtook coverage of Tesla stock from Adam Jonas, who had covered the company at Morgan Stanley for years. Percoco is handling Tesla now that Jonas is covering embodied AI stocks and no longer automotive.
His first move after grabbing coverage was to adjust the price target from $410 to $425, as well as the rating from ‘Overweight’ to ‘Equal Weight.’
Percoco’s new note regarding Tesla highlights the company’s extensive lead in self-driving and autonomy projects, something that it has plenty of competition in, but has established its prowess over the past few years.
He writes:
“It’s not even close. Tesla continues to lead in autonomous driving, even as Nvidia rolls out new technology aimed at helping other automakers build driverless systems.”
Percoco’s main point regarding Tesla’s advantage is the company’s ability to collect large amounts of training data through its massive fleet, as millions of cars are driving throughout the world and gathering millions of miles of vehicle behavior on the road.
This is the main point that Percoco makes regarding Tesla’s lead in the entire autonomy sector: data is King, and Tesla has the most of it.
One big story that has hit the news over the past week is that of NVIDIA and its own self-driving suite, called Alpamayo. NVIDIA launched this open-source AI program last week, but it differs from Tesla’s in a significant fashion, especially from a hardware perspective, as it plans to use a combination of LiDAR, Radar, and Vision (Cameras) to operate.
Percoco said that NVIDIA’s announcement does not impact Morgan Stanley’s long-term opinions on Tesla and its strength or prowess in self-driving.
NVIDIA CEO Jensen Huang commends Tesla’s Elon Musk for early belief
And, for what it’s worth, NVIDIA CEO Jensen Huang even said some remarkable things about Tesla following the launch of Alpamayo:
“I think the Tesla stack is the most advanced autonomous vehicle stack in the world. I’m fairly certain they were already using end-to-end AI. Whether their AI did reasoning or not is somewhat secondary to that first part.”
Percoco reiterated both the $425 price target and the ‘Equal Weight’ rating on Tesla shares.
Tesla stock (NASDAQ: TSLA) just got a price target boost from its biggest bear, Gordon Johnson of GLJ Research, who raised his expected trading level to one that is 95 percent lower than its current trading level.
Johnson pushed his Tesla price target from $19.05 to $25.28 on Wednesday, while maintaining the ‘Sell’ rating that has been present on the stock for a long time. GLJ has largely been recognized as the biggest skeptic of Elon Musk’s company, being particularly critical of the automotive side of things.
Tesla has routinely been called out by Johnson for negative delivery growth, what he calls “weakening demand,” and price cuts that have occurred in past years, all pointing to them as desperate measures to sell its cars.
Johnson has also said that Tesla is extremely overvalued and is too reliant on regulatory credits for profitability. Other analysts on the bullish side recognize Tesla as a company that is bigger than just its automotive side.
Many believe it is a leader in autonomous driving, like Dan Ives of Wedbush, who believes Tesla will have a widely successful 2026, especially if it can come through on its targets and schedules for Robotaxi and Cybercab.
Justifying the price target this week, Johnson said that the revised valuation is based on “reality rather than narrative.” Tesla has been noted by other analysts and financial experts as a stock that trades on narrative, something Johnson obviously disagrees with.
Dan Nathan, a notorious skeptic of the stock, turned bullish late last year, recognizing the company’s shares trade on “technicals and sentiment.” He said, “From a trading perspective, it looks very interesting.”
Tesla bear turns bullish for two reasons as stock continues boost
Johnson has remained very consistent with this sentiment regarding Tesla and his beliefs regarding its true valuation, and has never shied away from putting his true thoughts out there.
Tesla shares closed at $431.40 today, about 95 percent above where Johnson’s new price target lies.
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