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Why Tesla Referrals Aren't A Bad Thing For The Stock

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Why Tesla Referrals Aren't A Bad Thing For The Stock
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Media reports on Wednesday said that Tesla Motors Inc (NASDAQ: TSLA) will begin offering a $1,000 discount on its Model S vehicle if a new customer was referred by a current owner.

According to CNBC, the referee will also receive a $1,000 credit towards the purchase of a new vehicle, service or accessories. In addition, the first customer to successfully refer 10 new buyers will receive a completely free Model X vehicle.

Credit Suisse: Some Will See This As A Sign Of Week Demand, We Don't

Commenting on the news report, Dan Galves of Credit Suisse acknowledged investor concern that Tesla's new program could be seen as a sign of weak demand. However, the analyst doesn't it see it that way at all.

Related Link: Exclusive: Piper's Gene Munster Explains Why Apple Should Buy Tesla

Galves explained that evidence suggests Tesla is in fact seeing "strong" Model S demand and offered four bullet points to support his thesis:

  • Based on Tesla's website, vehicles ordered today will be delivered in September, implying cars manufactured in the third quarter "appears nearly sold out."
  • Delivers has "accelerated" in Europe with second-quarter delivers up 13 percent versus the first quarter (ex. Norway, Model S deliveries were up over 40 percent).
  • A full quarter of availability of the lower-end S70D should result in "incremental global demand" in the third quarter.
  • Tesla CEO Elon Musk said at a reporters roundtable event that during the second quarter Model S orders in North America grew 30 percent year-over-year and grew 60 percent year-over-year in Europe. He also said that Asian deliveries doubled from the first quarter.

If Demand Is Strong, Why Offer Discounts?

If demand is as strong as Galves claims, this raises the question why Tesla would implement such an initiative in the first place.

Galves offered three possible reasons:

  • Tesla spends $2,000 per unit sold on its physical dealership network. If word of mouth advertising is successful, Tesla could cut back on future spending in its stores and sales personnel.
  • Tesla is nearing a production ramp in which total production capability will be in the 100,000 to 150,000 annualized range versus approximately 50,000 today. An initiative to spur sales is consistent with management's comments that it would not actively drive incremental demand unless they had incremental production capabilities.
  • Finally, Tesla could be looking to boost Model S demand ahead of the Model X launch.

Closing Remarks

"Since late 2014, Tesla has made vast improvements to the car (all-wheel drive, active safety, range, acceleration, et al)," Galves wrote. "And it's stretched the price point to $70k-$130k by launching compelling, high value offerings at the low-end and high-end. We see this expanded price range as a major positive to addressable market / demand."

Shares remain Outperform rated with an unchanged $325 price target.

Latest Ratings for TSLA

DateFirmActionFromTo
Apr 2017PiperJaffrayUpgradesNeutralOverweight
Apr 2017BarclaysReiteratesUnderweight
Mar 2017Deutsche BankMaintainsHoldHold

View More Analyst Ratings for TSLA
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Posted-In: Credit Suisse Dan Galves Elon Musk Tesla Tesla Model S Tesla Model XAnalyst Color Analyst Ratings Best of Benzinga

 

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