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Analysts Wonder If Tesla Can Maintain Model X Demand Without Aggressive Discounting

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Analysts Wonder If Tesla Can Maintain Model X Demand Without Aggressive Discounting
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While checks indicate improvement in Model X orders, there seems to have been aggressive Model S discounting at U.S. sales centers to maximize Q3 deliveries, Pacific Crest’s Brad Erickson said in a report. He maintained a Sector Weight rating on Tesla Motors Inc (NASDAQ: TSLA), citing near-term ASP and margin risk.

While stating that the Q3 delivery number may “provide some reprieve for the bulls,” Erickson expressed concern regarding the “declining quality for incremental Model S demand,” which not only posed ASP and margin risk, but also brought longer-term demand into question.

Related Link: Tesla Factory Check: Q3 Deliveries Likely To Meet Guidance

Solid Deliveries In Q3

Deliveries are likely to be in-line with the Pacific Crest estimate of 22,000, or 90 percent year-over-year growth. Model X deliveries may marginally beat the forecast of 9,000, while Model S deliveries could be in-line to slightly lower that the forecast of 13,000, Erickson mentioned.

Concerns Around Quality

“While we think Tesla is tracking to the low end of its previously stated delivery target of 80,000-90,000 for 2016, it is using various discounting mechanisms to do so, which is cause for worry,” the analyst wrote.

Increased sales of the 60 kWh Model S, which is $9,000 cheaper than the 75 kWh option, would add pressure on Tesla’s gross margin by an estimated 1000 basis points. Moreover, up to a third of the current Model S orders were coming from Model 3 reservation holders opting for the newly created two-year lease, which is less expensive.

“Finally, we found Tesla has been employing a deeper discounting formula to drive sales of inventory models, with all offers expiring this Friday, the last day of the quarter,” Erickson stated.

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Latest Ratings for TSLA

DateFirmActionFromTo
Oct 2016Goldman SachsMaintainsNeutral
Oct 2016Goldman SachsDowngradesBuyNeutral
Sep 2016Cowen & Co.Initiates Coverage onUnderperform

View More Analyst Ratings for TSLA
View the Latest Analyst Ratings

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