US equities rally; Tesla worries grow on Q4 deliveries

Does Tesla have a demand issue?

As we alluded to in several equity notes during Q4 problems were arising for Tesla due to elevated battery costs and excessive electricity costs in Europe and to some extent in China. Future demand was clearly coming down which got reflected in many EV stocks. Tesla shareholders were late to see the underlying trends but quickly corrected affairs in Q4. Last night Tesla announced Q4 deliveries of 405.3K coming short of estimates at 420.8K and significantly below the Q4 production number of 439.7K expanding the production gap to delivery (see chart). The gap might be driven by a combination of US demand being pushed into Q1 by the US Inflation Reduction Act which enables a US tax credit for purchasing an EV in 2023. But the other effect is a clear demand surprise in Europe and China, and something VW executives have alluded to as well.

Lithium and nickel prices remain elevated and battery costs soared in 2022 forcing Tesla to raise prices multiple times. The higher price point combined with high electricity prices caused a negative impact on demand. Does Tesla has a demand problem? In the short-term yes, in the sense that production must be realigned with the short-term reality, but the EV adoption is powering on at a blistering pace and will not stop. As our ‘EV battle’ chart shows, Tesla is still in a comfortable position against the competition with BYD and VW being its main competitors for the EV crown. This year will likely prove to be a difficult one for Tesla due to margin pressures and ever growing competition, but the EV maker is here to stay and demand will continue to grow. But for now the Q4 delivery miss will add to investor worries over Tesla.