Tesla (TSLA) has seen a sudden drop in wait times for new order deliveries on some of its EV models, and some see it as a drop in demand, but there’s more to it.
Over the past few weeks, industry watchers have noted that Tesla’s delivery times have dropped significantly. Some models that Tesla was quoting up to six months for delivery just recently are now listed as available in weeks.
Many, especially the usual Tesla naysayers, use it as “evidence” that demand is “falling”.
However, there is much more than that.
Sources familiar with the matter said Electrek that Tesla is not experiencing any demand issues, but there are gaps between its backlog and production allocations for certain versions of its vehicles that result in a few openings, especially at the end of the quarter, for faster deliveries.
Due to Tesla’s direct selling business model, the company is responsible for its vehicles until they are in the hands of customers. Inventory doesn’t go through a car dealership, and therefore it’s up to Tesla to keep inventory low and match production to orders.
Depending on demand for certain models and production capacity per model, there may be a discrepancy that creates volatility in wait times.
In reality, Tesla even recently stopped taking new orders on some models to fill its long backlog.
Pierre Ferragu of New Street Research, a Wall Street analyst covering Tesla, sent a note to customers this week warning them not to read about falling wait times as demand falls:
Do not read a sudden drop in the waiting time too fast. Our analysis suggests that the recent sudden 40-60% drop in wait times that Tesla reports for new orders only reflects a normalization of the backlog, after accelerating in the first half of the year.
He added in the note:
Understand wait time volatility. Even with ever-increasing orders, erratic increases in production capacity mean wait times will remain volatile. Our analysis clearly suggests that orders are accelerating again this quarter, despite lower indicative lead times.
In fact, Ferragu expects orders and shipments to increase while end-of-quarter backlog and wait times continue to decline for the rest of the year:
The production ramps of Gigafactory Berlin and Gigafactory Texas also allow better localization of products and help reduce waiting times.
New Street Research maintains a target price of $530 on Tesla (TSLA) stock and expects the automaker to surprise investors with a “monster” quarter in the third quarter with record free cash flow.
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