Tesla announced that its Fremont and Buffalo factories are closing production indefinitely. This, of course, is the prudent move, prioritizing employee safety. Given the company’s current $8B plus in cash on hand and the fact that variable production costs will scale down, the company is well-positioned to withstand a production shut down. Other takeaways:
- We don’t know how long this will last and, therefore, we do not have an updated delivery target for 2020.
- Where was demand for Model 3 going into today’s shutdown? Prior to last month, Tesla’s pricing led us to believe that demand was healthy. Specifically, the company has a strategy of producing as many cars as possible and pricing them according to demand. The fact that pricing has not changed in the last three months is a loose indication that demand was on-track entering this period of uncertainty. As a point of reference, Tesla’s last pricing change was a $500 model 3 increase in the Dec-19 quarter.
- Delivery times also support the view that demand was healthy mid-way through the quarter but has, understandably, tapered off in recent weeks. US Model 3 lead times were 3-4 weeks in the first half of the quarter and have more recently declined to 1-2 weeks.
- Putting it together, all bets are off regarding Tesla’s 2020 production and delivery numbers. That said, the company is properly capitalized to resume its trajectory of growing at 25%-30%, ahead of the broader auto industry.
- Here is a link to our previous work on this topic published yesterday.