This year is going to be ugly for the auto industry, and Tesla is showing signs that it has a powerful demand advantage over its competitors. March quarter delivery numbers were up 40% year over year to 88.4k compared to the overall US auto industry down 29%, despite the Tesla-specific headwind of the elimination of the $1,875 US tax credit in the quarter. Tesla is winning because they have a product that is measurably better than both gas and electric competitors. Looking forward, things will get more difficult for the company along with all automakers in the June quarter. For the balance of the year, we expect Tesla to continue to report 15-25% better delivery results versus its peers.

Long-Term Bull Case Takes a Step Forward

We believe there’s a long-term take away from the painful March quarter when it comes to Tesla’s future. Specifically, it will likely get progressively more difficult for traditional auto to catch up to Tesla, as demand is outpacing the broader industry. As the company scales to meet demand, Tesla’s price performance gap versus other car makers will widen. This is because other car markers are producing EVs at subscale, which creates a dilemma:

If traditional auto releases a car with features and range at parity and sells the car at cost, it will be priced 10-25% higher than a comparable Tesla. This will soften demand and lead to further market share loss.

If traditional auto subsidizes vehicle cost to gain market share they will lose money with limited margin cushion. The more they sell, the more money they lose. Taking it to the logical end, we believe car companies that have been around for 50 plus years will eventually (10 years from now) be forced to restructure or go out of business.

No Update to Full-Year Guidance

As expected, the company did not update its goal of delivering 500k vehicles in 2020. We see this as a non-event and believe the company’s measure of success this year should be related to performance versus the auto industry. We remain confident that the March quarter delivery results, growing almost 70% faster than the industry, is a material read on how the balance of 2020 will play out. In future quarters, we do expect the growth gap to close and for Tesla to be growing 15-25% faster than overall US auto.

Bracing for June

The company did not give June guidance. We’re opting to withhold our estimates until late May when we have a more clear picture of the global economy. We can say the number will be measurably below the just reported March deliveries of 88.4k. Currently, lead times for a US delivery of Model 3 are 8-12 weeks, compared to a 1-3 weeks a month ago. This suggests that two-thirds of deliveries will be pushed into the September quarter.

December Should See Bounce Back

Taking the optimistic view that the world will be returning to normal starting in October, Tesla should see a dramatic bounce back in deliveries for the December quarter. The biggest unknown will be production contribution from Shanghai, which is still in the early ramp phase.

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