LNG: TESLARATI

Tesla has just completed the first quarter of 2019, and all eyes are now on the company as it prepares to release its first quarter vehicle production and deliveries report. As the electric car maker’s supporters and critics brace for the release of Tesla’s official numbers, Elon Musk appears to be maintaining a very pleasant disposition, hinting at a possible Model 3 surprise for Q1.

Musk seemed notably relaxed during the last two days of March. Over the weekend, Musk tweeted about ducks, released a heavily autotuned rap song titled RIP Harambe, and lamented the fall of his record label (named Emo G Records), just to name a few. The tweets exhibited Musk’s classic witty, self-deprecating humor, but most of all, they were notably (and given the time of the tweets, surprisingly) lighthearted. These seemingly random, goofy tweets were interspersed with messages of thanks to the Tesla team, which continued to push vehicle deliveries all the way until the end of March 31.

“Amazing work by Tesla Delivery teams, especially in Europe & China! Most insane logistics challenge I’ve ever seen. Thanks also to many country & city officials for your help this weekend! Super appreciated,” Musk wrote on Twitter.

Musk’s sunny disposition and quirky, off-topic tweets at the end of the quarter could be interpreted in several ways, one of these being that Tesla has met or even exceeded the CEO’s expectations for Q1 2019. Musk has been conservative about Tesla’s performance in the first quarter, even noting that Tesla might not be profitable in Q1. Despite these, Musk has set ambitious goals for the Tesla team, noting in an email midway through March that the company should aim to deliver 30,000 more vehicles by the end of the quarter.

What then, could be the reason behind Elon Musk’s tweet-filled weekend? A potential clue might lie in the Q1 estimates of Bloomberg‘s Model 3 tracker, which has become amazingly accurate over the past quarters. The tracker only overestimated Tesla’s Model 3 numbers once in the past, with the tool’s prediction being 0.4% over the electric car maker’s actual production figures. This accuracy was on display once more in Q4 2018, with the tracker being just 0.5% off Tesla’s actual numbers. By the end of Q1 2019, Bloomberg‘s Model 3 tracker was estimating a production of 79,856 Model 3, far above the average analyst estimate of 64,000 units listed by research firm Visible Alpha.

Whether Bloomberg‘s Model 3 tracker will prove to be as accurate as before or uncharacteristically inaccurate this time around remains to be seen. Considering reports from countries such as China, where deliveries were conducted until the midnight of March 31, there is a pretty fair chance that Elon Musk’s pleasant mood might bode well for Tesla after all.

Tesla stock (NASDAQ:TSLA) remains volatile as the electric car maker approaches the end of the first quarter, and as analysts continue to be divided over the company’s capability to deliver the Model 3 to buyers across North America, Europe, and China.

Ryan Brinkman at J.P. Morgan is among Tesla’s skeptics, recently reiterating his Underweight rating for TSLA stock in a note to clients. Brinkman lowered his price target from $230 to $215 per share over what he claimed were reports of delays in shipping the Model 3 to Europe and China. The J.P. Morgan analyst estimates that Model 3 deliveries for the first quarter will number 50,000 units, which are below the FactSet consensus of 54,600. 

“Any delays in delivering vehicles to Europe and China carry the potential for a disproportionate impact on 1Q deliveries (and, hence, revenue, margin, and cash flow), given the already guided back-end-loaded nature of 1Q deliveries,” Brinkman wrote.

Baird analyst Ben Kallo, a longtime TSLA bull, is taking a more optimistic stance. In a note on Thursday, Kallo stated that any updates from Tesla about the $35,000 Model 3 will likely be positive for the stock. Kallo reiterated his Outperform rating on the electric car maker, as well as his $465 price target, which is far ahead of FactSet’s average of ~$335 per share.

“Any update on Model 3 demand/backlog, particularly after the introduction of the $35,000 variant, would be positive for the stock. We think Tesla could provide an updated demand outlook or backlog (especially following the $35,000 model unveil), which we think could exceed expectations and would be positive for the stock,” Kallo wrote.

With Model 3 deliveries starting in Europe and China, and amidst the reduced federal tax credit in the United States, Tesla is fighting an uphill battle. Musk has previously admitted that Tesla might not be profitable this quarter, though he has nonetheless urged the company’s employees to push as many vehicles as possible. In his message, Musk noted that Tesla should aim to deliver as many as 30,000 vehicles in the last two weeks of March.

March 29th 2019

Let’s check out how busy now in Tesla Beijing Delivery Center. I was told by my follower that they are delivering over 200+ units per day recently in that location. $TSLA #Tesla #China #TeslaChina #特斯拉 #中国 #北京 pic.twitter.com/lceo8BiZU3

— Vincent (@vincent13031925) March 29, 2019

Reports from the Tesla community in Europe and China depict an end-of-quarter push that is fully underway, with images and footage of full delivery centers being shared online. A Tesla owner-volunteer from China even shared in a social media post that one delivery center was able to deliver more than 200 Model 3 in one day. The next few days will determine if Tesla will be able to pull another rabbit out of the hat this quarter. If these reports of mass deliveries are any indication, there is a pretty fair chance that Tesla could defy the odds and pleasantly surprise Wall Street once more.

As of writing, Tesla stock is trading -0.07% at $278.20 per share.

Disclosure: I have no ownership in shares of TSLA and have no plans to initiate any positions within 72 hours.

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Tesla’s stock has continued to slide over the last month, and not for one particular reason. The company has, by far, the best electric vehicles in the world, with the Model S, Model X, and Model 3 leading their segments by miles. Despite this, investors believe that the company is under immense pressure.

Elon Musk hasn’t really gotten the message. He’s plowing ahead with the multi-billion dollar Gigafactory in China, aggressively expanding the Model 3 to new countries, and doubling down on commitments to the super-delayed (but incredible) solar roof. Most other executives would throttle back expansion, allowing the company to widen profits and make investors happy. Musk isn’t like most executives (if you didn’t know that already?). He ignores the idea of ‘corporate strategy,’ and is far more interested in pushing the limit on what is possible. But, with over 40,000 employees and annualized production nearing 400,000 units, the company is entering a period in time in which long-term strategic planning would add tremendous value.

Time to deploy some strategery.

Let’s start with the Model Y. Or I should say, let’s begin with Tesla’s most important vehicle. The SUV market is exploding, and it’s not showing any signs of slowing down. The global SUV market grew from 9.8M units in 2013 to an estimated 23.8M units in 2020. That’s nearly 14% annualized growth over the last seven years. While Tesla has the Model X, it’s priced well above the average consumer’s budget and targets the highest-end of the market.

On the other hand, the Model Y is poised to enter the hottest market in the world: mid-sized crossovers. With world-class technology and an affordable price, it is certainly going to be Tesla’s most popular vehicle. To meet demand, Tesla is going to need to scale production faster and more efficiently than ever before. The only problem? Tesla is already busting out of their massive Fremont facility, and their new facility in China will likely only feed the Asian market (remember the last Chinese-built car you saw on US or European roads? Me neither).

So what does the company do? Build a car in the Gigafactory? Expand Fremont further? Both options aren’t cheap or super fast. Well, let’s jump back to that point I made about long-term corporate strategy. Tesla is at a point where it can’t afford (without raising more cash) to start construction on another US or European factory, the company is already building a Chinese factory to meet existing demand is near cash-strapped. So what should they do? It’s time to partner up with another automaker, specifically Fiat Chrysler.

An Unlikely Marriage.

Fiat Chrysler (FCA) is one of the only automakers holding out on large investments into EV technology, GM is betting big and VW is betting even bigger. With Tesla’s cutting edge motor and battery technology, FCA could leap ahead of their rivals and electrify their fleet. First, the company could start by underpinning a vehicle -platform with Tesla’s powertrain, bringing more scale to Tesla battery operations and forgoing the multi-billion dollar expansion into the technology. Automakers have done these sort of partnerships for years. FCA already shares some diesel engines with GM, Daimler has borrowed VW engines, and most recently Toyota is borrowing a BMW engine for the iconic Supra.

(Photos: Tesla, Ram; Graphic: Christian Prenzler)

So what’s in it for Tesla? Let’s start with the main stage: cash. Musk isn’t interested in slowing down his global expansion, and he shouldn’t be. The company has tremendous demand and is on the cusp of launching several new products: Model Y, Semi, Roadster, and the Solar Roof. A large infusion of cash would allow the company to continue pushing the pedal to the metal. FCA has over $12B in cash, so the company could invest several billion dollars into Tesla. Outside of cash, FCA can lend some much-needed expertise in manufacturing and even some production capacity at one of the company’s two-dozen factories in North America.

I get it, teaming up with FCA doesn’t sound S3XY. But by teaming up with one of the largest automakers, Tesla gains a leg up in manufacturing and an infusion of cash that would allow Musk to continue investing heavily in expansion. What did you think of Tesla partnering with FCA?

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Disclaimer: This column does not necessarily reflect the opinion of Teslarati and its owners. Christian Prenzler does not have a position in Tesla Inc. or any of its competitors and does not have plans to do so in the next 30 days.

A closer look at Gigafactory 3’s overnight construction work has revealed several interesting details about the progress of Tesla’s upcoming factory in Shanghai. Two prominent elements are notable from the recently-shot drone footage. One, the work on site appears to have spread to other areas of the 864,885-square meter lot; and two, the ongoing work for Gigafactory 3 reveals a foundation that will quickly give rise to the upcoming building structure.

While the majority of the construction work being done on the site was still dedicated to the Phase 1 area where a general assembly building is expected to be constructed, other portions of the Gigafactory 3 lot are also ablaze with activity. This suggests that work on the upcoming facility has kicked into high gear, with China’s workforce now spreading their construction efforts for multiple projects.

This bodes well for the completion of Gigafactory 3. The timeframe for the facility has always been aggressive, with Elon Musk estimating that the initial construction of the electric car factory will be completed this summer. This already ambitious timeline was replaced by an even more aggressive timeframe by Shanghai official Chen Mingbo, who announced earlier this month that Gigafactory 3’s initial construction would be done this May. With multiple areas in the 864,885-square meter lot seeing activity, it will not be surprising if the Shanghai official’s estimates will be proven accurate.

Also impressive from the recent flyover is the presence of large, multiple square holes on the ground. These holes appear to be designed to hold prefabricated box beams for the facility’s roof trusses. The construction work in these areas also suggest that Tesla is using pile foundations for Gigafactory 3, which works well for the site considering that the ground in the location is loose and water-logged. From these initial components alone, it seems certain that Tesla and its construction partner, China Construction Third Engineering Bureau, are doing what they can to ensure that Gigafactory 3 will be durable enough to last decades.

Gigafactory 3 is expected to play a vital role in Tesla’s push into China. Dedicated to producing affordable versions of the Model 3 and Model Y, the upcoming factory will allow Tesla to compete on even ground against local competitors. China is the world’s largest electric car market, and if Tesla can breach it with premium, competitively-priced vehicles, the company’s efforts in the country could result in a lot of lucrative benefits.

Watch Gigafactory 3’s latest nighttime drone flyover in the video below, courtesy of 烏瓦 from YouTube.

To say that Tesla is moving fast is an understatement. Operating under Silicon Valley principles, Tesla has exhibited insane growth over the nearly 16 years it has been in business. Today, the electric car maker is a trailblazer in the EV market, and it is poised to grow even more. Veteran tech analyst Gene Munster notes that this is made possible by a strategy that Tesla has adopted, known as “blitzscaling.”

Blitzscaling is a concept that was initially coined by Reid Hoffman of PayPal and LinkedIn fame. Companies that adopt this strategy prioritize high-speed growth over efficiency to become the first to reach a critical scale. With this strategy in place, traditional growth techniques such as careful planning, cautious investment, and a deliberate effort to solve all problems before moving forward get thrown aside.

Illustrating this point, Hoffman stated that starting a company is like jumping off a cliff and assembling a plane on the way down. Blitzscaling is jumping off a cliff and assembling the aircraft faster by strapping on and igniting a set of jet engines while still building the wings.

This strategy is incredibly dangerous, as the risks of failure are very high. Nevertheless, blitzscaling is one of the best techniques that a company could adopt if it is pursuing a very valuable prize and if the competition in its niche is intense. This fits perfectly with Tesla, whose goal is to accelerate the world’s transition to sustainable energy while surviving in the hyper-competitive auto industry.

Tesla has exhibited the signs oft blitzscaling for years, as seen in Elon Musk’s bet-the-company strategies with the Model 3 ramp. In a previous interview, Musk specifically noted that the Model 3’s “production hell” took him and Tesla to the edge. As Munster recently wrote, Tesla’s difficulties last year, including the company’s alarming financial state then, are classic characteristics of a company that is blitzscaling.

The Loup Ventures managing partner explains that blitzscaling is better suited for privately-owned companies since private investors are usually more open to the idea of investing a lot of money quickly for future growth. This could be seen in the success of companies such as Airbnb and Uber, both of which burned a lot of money to become what they are today. Tesla is in the difficult position of blitzscaling as a public company where all have access to its finances and all are able to speculate its solvency. As Tesla’s history has shown, this high-risk, high growth strategy is also a magnet for short-sellers, who can bet on the company’s failure for financial gain.

Tesla is still a young automaker, and for the most part, it is still operating like a startup. One can only hope that the Model 3 production ramp’s bet-the-company situation will not repeat itself when Tesla brings the Model Y to market. Whether or not blitzscaling is still the right strategy for Tesla at this point is up for debate, but one can only hope that the upcoming ramp for the Model Y, Solar Roof, Pickup Truck, and Tesla Semi will be a lot smoother and less painful than that of the Model 3.

Here’s Hoffman’s teaser of his book on blitzscaling. The parallels to Tesla’s strategy are quite compelling.