There’s no doubt that Tesla has been actively trying to convert some of its ~400,000 Model 3 reservations to Model S orders. We reported on Tesla reaching out to reservation holders after unveiling a new lower-priced Model S 60 to try to convince them to change their reservation into an order.

We were skeptical of the tactic. Now according to a Tesla analyst, the method could not only be working, but he estimates that as many as a third of Tesla’s current Model S orders are coming from Model 3 reservation holders.

The comment was made in a new note today by Pacific Crest analyst Brad Erickson, who covers Tesla for the firm. He wrote (via Streetinsider)

“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. First, we found continued traction of the $9,000-cheaper 60 kWh Model S versus the 75 kWh option, which is dilutive to gross margin by an estimated 1000 basis points. Second, we think as many as a third of current Model S orders are coming from Model 3 reservation holders opting for the newly created two-year (and less expensive) lease. 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.”

Tesla did introduce a new two-year lease option for a limited time through August and September. The option lowered the monthly cost of leasing a Tesla Model S 60 to less than $600 and the 2-year timing could have been aimed at bridging the gap of a Model 3 delivery for a lot of reservation holders depending on where they are located and when they reserved.

Erickson also talked to Tesla representatives at retail locations to estimate the company’s delivery numbers for the third quarter, which Tesla should disclose next week:

“Based on conversations with 20 Tesla sales centers around the United States, we expect deliveries to be relatively in line with our estimate of 22,000 deliveries, or 90% y/y growth. Based on our checks, we think Model X deliveries could actually be a bit above our forecast of 9,000 while we expect Model S deliveries to be more in line with to slightly below our estimate of 13,000.”

Finally, he also commented on the SolarCity merger:

“While we believe the SolarCity (SCTY) merger will ultimately get done, we think the car business, which should account for more than 90% of revenue if the SCTY deal goes through, has several hurdles yet to clear, namely how it will bridge demand all the way to Model 3 late next year. Bulls could be optimistic about strong deliveries (which we expect); however, Tesla’s clear tactics to improve optics in the face of slowing demand would likely outweigh positive deliveries and as a result keep us cautious on TSLA.”

He reiterated a ‘Sector Weight’ rating on Tesla’s stock.

Brad Erickson is ranked #3,747 out of 4,185 analysts on Tip Ranks with a 48% success rate and an average return of -7.1%.

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