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Another Negative Data Point for Traditional Auto

Tesla delivered 139,300 vehicles (up 43% y/y) and produced 145,036 vehicles (up 51%) in the most recent September quarter. As a reminder, the company’s 2020 delivery target is 500k vehicles, which would imply 181k deliveries in the December quarter. We believe this will be difficult to reach, yet achievable. Here are our takeaways:

  • Tesla’s growth is coming from Model 3 and Y, with deliveries up 56%, compared to Model S and X deliveries which were down 13%. This tells us that lower price is a major factor in expanding the market.
  • The company’s lead widened in the September quarter to 50%, with deliveries up 43% compared to Ford, GM, and Fiat Chrysler, whose deliveries fell on average 7% in Q3. This compares to a 31% gap in the June quarter.
  • We expect that large gap to continue for the foreseeable future, as traditional auto largely lacks a compelling, price-effective EV offering.

Traditional auto’s catch 22

We believe traditional carmakers have two options going forward:

  • Option 1: Release a car with features and range at parity with a Tesla, and sell it at cost. This car will be priced 10-25% higher than a comparable Tesla, thereby softening demand and leading to further market share loss.
  • Option 2: Subsidize vehicles in order to gain market share from Tesla. With a limited margin cushion, this will increase losses. The more they sell, the more money they lose.

Taking it to the logical end, we believe car companies that have been around for 50+ years will eventually (10 years from now) be forced to restructure or go out of business.


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