Vertical Group’s Gordon Johnson is hardly on Elon Musk’s holiday card list: two months ago, Johnson explained why, far worse than even more analyst estimates, there was a gaping $3.4 billion funding hole in Tesla’s balance sheet. Well, after yesterday’s glaring attempt at stock manipulation deep value investing by Elon Musk, Johnson is now officially at the top of Musk’s shit list because overnight the outspoken and contrarian analyst just downgraded Tesla to a street-low price target of $93 (from the not that much more generous $99 target previously).
Why did the Vertical Group analyst take a machete to his price target?
One main reason: according to Johnson’s calculations, the cancellation rate on Model 3 is a disastrous 66%, up 33% YTD, or as Gordon says, “Boy… that’s a Lot of Model 3 Cancellations.”
Here are the details from Gordon:
Our work (Ex. 1) implies a 66% cancellation rate for the “euphoric” day-1 Model 3 reservations of ~140K. When applying this figure to our est. for 582K in gross reservations through mid-Apr. (i.e., 518K in gross reservations 7/31/17 + 7.55K/month in new reservations 7/31/17-to-4/15/18 [or 64K] to account for a monthly cancellation rate of 1% as of 7/31/17), we calculate sales from 582K in early Model 3 reservations of just 197K – we remind our readers that in mid-Apr. ’18, TSLA sent out configuration invites to US-based non-owners who made reservations one day after reservations opened up to the public (i.e., 4/1/16); from this, one can imply in mid-Apr. ’18 TSLA had fully exhausted Model 3 reservations made 3/31/16 (i.e., day one); furthermore, as of mid-Apr. ’18, all US-based owner reservations were complete.
Exhibit 1: Tesla Day-1 Take Up Rate Analysis – 66% of Day-1 Reservations (excl. Deferrals) Canceled as of 4/15/18
Moreover, the bearish analyst notes:
(a) over the 5/15/16-to-7/31/17 timeframe, after the initial Model 3 buying euphoria waned, TSLA experienced new orders of just 145K (link for 5/15/16 reservations; link for 7/31/17 reservations), or ~2.5K/week, with net reservations (i.e., adjusted for cancellations) up by just ~1.6K/week over this same timeframe, &
(b) based on TSLA’s 5/2/18 statement (link) that Model 3 net reservations “exceeded 450K”, or >460K when adjusted for deliveries of ~10K cars 3Q17-to-1Q18, when netting this against TSLA’s net reservations of 455K as of 7/31/17 (link), net orders for Model 3 cars increased by a dismal 5K units over the 8 month period 7/31/17-to-5/2/18, or 139 cars/week (this is not …read more