Tesla announced first quarter 2019 production and delivery numbers on Wednesday evening. Here are our key takeaways:

As expected, logistics difficulties in China and Europe caused a miss on deliveries. Tesla delivered 63k total vehicles vs Street expectations of 75k. This included 50,900 Model 3s and 12,100 combined Model Ss and Xs.

We are focused on underlying demand. In an environment with stable production and logistics, deliveries are a proxy for demand. The company reaffirmed 2019 delivery guidance of 360k-400k total vehicles. This is an aggressive target, given the low end of the range (360k) implies an average of 99k deliveries per quarter compared to this quarter’s 63k and 91k in Dec-18.

The magnitude of the S and X miss was a surprise. The company delivered 12k vs expectations of 20k. We attribute the shortfall to allocating resources away from S and X toward Model 3 production, and, separately, it may be an indication that the sweet spot of demand is shifting to the lower-priced Model 3.

The reallocation of S and X production resources to Model 3 appears to have been inefficient. The company produced 11k (44% q/q) fewer S and X vehicles and only produced 1,556 (2.5% q/q) more Model 3s.

The company reported that is has “sufficient cash on hand.” It’s unlikely that Tesla will have to raise money in the Jun-19 quarter, but we believe raising money would be the right strategic move long-term.

It appears that the Sep-19 quarter would be most at risk in terms of deliveries, given the federal tax credit will step down from $3,750 to $1,875 at the end of Q2.

What Does All This Mean for Tesla?

The Mar-19 delivery and production numbers have little impact on Tesla’s long-term outlook. We have expected 2019 to be a bumpy year for Tesla. This bumpiness includes continuing to work through production and logistics challenges and finding a baseline for demand as the initial rush of Model 3 buyers subsides. While 2019 will be a challenge for the company, we continue to believe long-term investors will be rewarded. This belief is based on Tesla converting its technology lead into capitalizing on the undeniable trends of electric and autonomous vehicles.

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