Investor's Corner
Concerns about Tesla’s (TSLA) alleged ‘demand problem’ are likely overblown
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.
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.
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.
Investor's Corner
Tesla bear turns bullish for two reasons as stock continues boost
“I think from a trading perspective, it looks very interesting,” Nathan said, citing numerous signs of strength, such as holding its 200-day moving average and holding against its resistance level.
A Tesla bear is changing his tune, turning bullish for two reasons as the company’s stock has continued to get a boost over the past month.
Dan Nathan, a notorious skeptic of Tesla shares, said he is changing his tune, at least in the short term, on the company’s stock because of “technicals and sentiment,” believing the company is on track for a strong Q3, but also an investment story that will slowly veer away from its automotive business.
“I think from a trading perspective, it looks very interesting,” Nathan said, citing numerous signs of strength, such as holding its 200-day moving average and holding against its resistance level.
He also said he believes a rally for the stock could continue as it heads into the end of the quarter, especially as the $7,500 electric vehicle tax credit is coming to an end at the end of the month.
With that being said, he believes the consensus for Q3 deliveries is “probably low,” as he believes Wall Street is likely underestimating what Tesla will bring to the table on October 1 or 2 when it reports numbers for the quarter.
Tesla bear Dan Nathan has flipped his script on Tesla $TSLA shares, citing “technicals and sentiment”
— TESLARATI (@Teslarati) September 12, 2025
Tesla shares are already up over five percent today, with gains exceeding nine percent over the past five trading days, and more than fourteen percent in the past month.
While some analysts are looking at the performance of other Mag 7 stocks, movement on rates from the Federal Reserve, and other broader market factors as reasoning for Tesla’s strong performance, it appears some movement could be related to the company’s recent developments instead.
Over the past week, Tesla has made some strides in its Robotaxi program, including a new license to test the platform in the State of Nevada, which we reported on.
Tesla lands regulatory green light for Robotaxi testing in new state
Additionally, the company is riding the tails of the end of the EV tax credit, as inventory, both new and used, is running extremely low, generally speaking. Many markets do not have any vehicles to purchase as of right now, making delivery by September 30 extremely difficult.
However, there has been some adjustments to the guidelines by the IRS, which can be read here:
Tesla is trading at around $389 at 10:56 a.m. on the East Coast.
Elon Musk
Analyst: Elon Musk’s $1 trillion Tesla pay deal modest against robot market potential
Jonas highlighted Tesla’s longer-term ambitions in robotics as a key factor in his assessment.
Morgan Stanley analyst Adam Jonas, one of Wall Street’s most ardent Tesla (NASDAQ:TSLA) bulls today, has described Elon Musk’s newly proposed $1 trillion performance-based compensation package as a “good deal” for investors.
In a note shared this week, Jonas argued that the package helps align the interests of Musk and Tesla’s minority shareholders, despite its shockingly high headline number.
Future market opportunities
Jonas highlighted Tesla’s longer-term ambitions in robotics as a key factor in his assessment. “Yes, a trillion bucks is a big number, but (it) is rather modest compared to the size of the market opportunity,” Jonas wrote. He added that the humanoid robot market could ultimately surpass the size of today’s global labor market “by a significant multiple.”
“We have entertained scenarios where the humanoid robot market can exceed the size of today’s global labor market… by a significant multiple,” Jonas wrote, as shared on X by Tesla watcher Sawyer Merritt.
The analyst likened the arrival of AI-powered robotics to the transformative effect of electricity, noting that “contemplating future global GDP before AI robots is like contemplating global GDP before electricity.” The Morgan Stanley analyst’s insights align with the idea that as much as 80% of Tesla’s future valuation could be tied to its Optimus humanoid robot program.
Elon Musk’s pay package
Tesla’s board has tied Elon Musk’s proposed compensation package to some of the most ambitious targets in corporate history. The 2025 CEO Performance Award requires the automaker’s valuation to soar from roughly $1.1 trillion today to $8.5 trillion over the next decade, a level that would make Tesla the most valuable company in existence.
The plan also demands a leap in Tesla’s operating profit, from $17 billion in 2024 to $400 billion annually. It also ties the CEO’s compensation to a number of product milestones, including the delivery of 20 million vehicles in total, 10 million active Full Self-Driving subscriptions, 1 million Tesla Bots, and 1 million Robotaxis in operation. Tesla’s board emphasized that Musk’s leadership was fundamental to achieving such ambitious goals, with Chair Robyn Denholm noting the award would align the CEO’s incentives with long-term shareholder value.
Elon Musk
Tesla board reveals reasoning for CEO Elon Musk’s new $1 trillion pay package
“Yes, you read that correctly: in 2018, Elon had to grow Tesla by billions; in 2025, he has to grow Tesla by trillions — to be exact, he must create nearly $7.5 trillion in value for shareholders for him to receive the full award.”
Tesla’s Board of Directors has proposed a new pay package for company CEO Elon Musk that would result in $1 trillion in stock offerings if he is able to meet several lofty performance targets.
Musk, who has not been meaningfully compensated since 2017, completed his last pay package by delivering billions in shareholder value through a variety of performance-based “tranches,” which were met and resulted in the award of billions in stock.
Elon Musk’s new pay plan ties trillionaire status to Tesla’s $8.5 trillion valuation
However, Musk was unable to claim this award due to a ruling by the Delaware Chancery Court, which deemed the payout an “unfathomable sum.”
Now, the company is taking steps to ensure Musk gets paid, as the Board feels that it is crucial to retain its CEO, who has been responsible for much of the company’s success.
This is not a statement to undermine the work of all of Tesla’s terrific employees, but a ship needs to be captained by someone, and Musk has proven he is the right person for the job.
The Board also believes that, based on a statement made by the company in its proxy, various issues will be discussed during the upcoming Shareholder Meeting.
Robyn Denholm and Kathleen Wilson-Thompson recognized Musk’s contributions in a statement, which encouraged shareholders to vote to approve the payout:
“We’re asking you to approve the 2025 CEO Performance Award. In designing the new performance award, we explored numerous alternatives. Ultimately, the new award aims to build upon the success of the 2018 CEO Performance Award framework, which ensure that Elon was only paid for the performance delivered and incentivized to guide Tesla through a period of meteoric growth. The 2025 CEO Performance Award similarly challegnes Elon to again meet a series of even more aspirational goals, including operational milestones focused on reaching Adjusted EBITDA targets (thresholds that are up to 28 times higher than the 2108 CEO Performance Award’s top Adjusted EBITDA milestone) and rolling out new or expanded product offerings (including 1 million Robotaxis in commercial operation and delivery of 1 million AI Bots), all while growing the company’s market capitalization by trillions of dollars.
Yes, you read that correctly: in 2018, Elon had to grow Tesla by billions; in 2025, he has to grow Tesla by trillions — to be exact, he must create nearly $7.5 trillion in value for shareholders for him to receive the full award.
In addition to these unprecedented performance milestones, the 2025 CEO Performance Award also includes innovative structural features, born out of the special committee’s considered analysis and extensive shareholder feedback. These features include supercharged retention (at least seven and a half years and up to 10 years to vest in the full award), structural protections to minimize stock price volatility due to administration of this award and, thereafter, incentives for Elon to participate in the Board’s continued development of a framework for long-term CEO Succession. If Elon achieves all the performance milestones under this principle-based 2025 CEO Performance Award, his leadership will propel Tesla to become the most valuable company in history.”
Musk will have a lot of things to accomplish to receive the 423,743,904 shares, which are divided into 12 tranches.
However, the Board feels he is the right person for the job, and they want him to remain the CEO. This package should ensure that he stays with Tesla, as long as shareholders feel the same way.
Tesla bear turns bullish for two reasons as stock continues boost
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