Tesla shares were straight down over $24, or 7. 6%, on Monday to $295 and dropped by over $81 or almost 22% from December 13 to the 24th. In the same timeframes, the S&P 500 offers fallen 2 . 7% and 11. 3%, respectively, as the NASDAQ dropped 2 . 2% and 12. 4%, respectively. On Wednesday Tesla was up over $11 or 4% in early stages to $307, fell back again to $294 but offers climbed to $307 by mid-day.
In a few ways, it isn’t surprising to discover Tesla fall a larger percentage compared to the market previously two weeks because it has lost vast amounts of dollars and has yet to demonstrate it can be lucrative on a constant basis. Mon was also a light trading day time due to it being a short session on Christmas Eve which can create additional volatility.
Musk tweets made investors nervous
Musk’s Saturday tweets may have just been a good reminder to potential buyers that the full $7, 500 Federal tax credit expires on December 31, but investors didn’t take it that way on Monday.
The first tweet reminding people that the $7, 500 tax credit will be halved to $3, 750 starting with January 1 deliveries was appropriate. If someone is willing to pay up for the Mid Range ($46, 000 base price but can be $56, 800 with the Autopilot feature and sales tax and other charges ) or All Wheel Drive model (over $64, 000) vs . waiting for the $35, 000 version, then they may want to pull the trigger.
The second tweet said that Tesla would make up the lost $3, 750 in tax credits if Tesla had committed delivery and the customer made a good faith effort to receive it before January 1 . While this is a very nice gesture from Musk, it does bring up questions about the cost to Tesla and more important, is there a demand issue. Investors don’t like giving away money and uncertainty regarding a business.
Reuters also reported that Tesla cut the price of the Model 3 in China by 7. 2% or $5, 600 to $72, 000. This was the third price cut in the last two months the company has implemented on its various models to help make up for the additional tariffs the Chinese government has imposed in retaliation for Trump’s tariffs on Chinese items. While what Tesla did makes sense to greatly help sales, it can hurt underneath line.
All that said a few tweets from Elon Musk probably contributed to the sharp sell-off in Tesla’s shares about Monday.
Does offering $3, 750 express anything about demand?
When there is so very much demand for the Model 3 how could it be that customers may order online or stop by a shop with 8 days still left in the one fourth and get yourself a car by the finish of the month? While “ offering ” $3, 750 in margin shouldn’t become on that lots of cars it feels as though this is a lot more than the standard quarter-end push and may pull sales in to the December one fourth from the March one fourth.
There can also be a little of an accounting hurdle to overcome to count these mainly because December quarter income if the cars aren’t delivered by December 31. While I’m no accountant, it would appear to me these will be March quarter product sales rather than fall in the December one fourth.
December quarter expectations
Overall it feels as though traders were feeling positive on the subject of the December one fourth until a couple of days ago. Sell- part analysts expect December quarter income of $7. 11 billion, a lot more than doubling last years $3. 3 billion. Model 3 shipments are anticipated to be around 60, 000 for the one fourth, up from nearly 56, 000 in the September one fourth. The Model 3 would generate about 50 % of the company’s total income.
THE ROAD is expecting an income of $2. 12 per tell a variety of $0. 50 to $4. 34. Actually if there are some hundred customers (300 within the next calculation) that Tesla must constitute the $3, 750 in lost taxes credits, that could only cost the business about $1 million. This might hardly move the monetary needle.
What have been a multi-week delay from purchasing a car to under a week might indicate clients who had deposit $1, 000 are actually looking forward to the $35, 000 Model 3 (and been hoping to get the full $7, 500 Federal tax credit). If the original reservation holders decide that paying $40, 000 plus with a much lower tax credit is not what they had hoped for or can financially handle, Tesla may see its deposit number shrink. Especially since Tesla has not committed to when it will be able to deliver the $35, 000 version.
The deposit shrinkage may not occur until the March or even the June quarter, after which the Federal tax credit falls to $1, 875 starting on July 1, 2019. However, combine that with selling 60, 000 plus Model 3’s in the December and March quarters, don’t be surprised if the $905 million that Tesla had at the end of September starts dropping.
March 2019 convertible debt comes back into play
When the shares were trading between $340 to $370, the $359. 87 breakeven price for March 2019’s $920 million in debt to be converted into shares was probably not a huge concern for investors. Now with the stock around $300, this rears its head again.