Further to this, I think it's useful to look in a bit more detail at what this tells us about demand.
The 50k net orders so far in Q2 maps to a current quarterly net order rate of c.90k. There are some factors holding this back and some factors possibly artificially boosting it relative to a pure run rate demand level.
Factors acting against the current 90k order rate.
- US SR+ launch in Q1 will have pulled orders into Q1 and created a backlog.
- Still adverse seasonality in 1H.
- Orders normally skewed to final month due to end of Q sales push/discounts.
- Many China customers will be waiting for the significantly cheaper GF3 Model 3s.
- Some S/X customers will be waiting for a further refresh as has been heavily rumoured.
- Relentless FUD
- No marketing.
- Still no Model 3 launch or direct S/X sales in many countries in the world.
- Some lingering demand pull forward impact from the tax credit changes in US and Holland at the end of 2018.
- No GF3 production which will dramatically reduce end consumer prices in China and dramatically increase the addressable market.
- No Model Y yet available! The Tesla product with the largest addressable market.
- No Pickup. No Semi.
- $200k+ lifetime financial, health and environmental subsidies for every ICE car sold.
Factors boosting the current 90k order rate.
- SR+ was launched in Europe and Asia during Q2, as well as leasing in US, which will have released some pent up demand/reservation conversions into orders.
- Some demand pull forward benefit in the US due to a smaller tax credit step down at the end of Q2.
- Some demand pull forward benefit in China due to fears of rising tariffs.
- Some pent up demand for Raven S/X cars.
On the whole, I think there are far more short term factors holding back the current 3/S/X order rate than those currently boosting it.
It looks to me like Tesla will again be supply constrained on all models in Q2, however demand and supply are tracking close to each other at current pricing and ideally Tesla would have more of an imbalance and more pricing power.
So given current demand level, when to advertise?
At the point where either Tesla's deliveries or pricing becomes significantly held back by demand, it makes 100% sense to start advertising. I'm glad Elon finally acknowledged advertising as a possibility last week. As Elon says, Tesla advertising will be "information & entertainment" rather than manipulation. It is not fair currently that such a large % of the population are stuck buying more expensive/inferior/dangerous cars because they are simply unaware or misinformed about the advantages of EVs and the value of Teslas. At some stage, advertising will become a necessary evil to widen Tesla's addressable market beyond the exclusive club of Elon's Twitter followers and friends of current owners. Tesla currently averages around $10k gross profit per car - I think advertising spend could make sense up to this amount per car on marginal car sales to customers they do not currently reach. At the point where Tesla is demand rather than supply constrained, increased demand will mean they can increase production rates which reduces costs and increases margins across all cars. It also puts more cars on the road which increases their word of mouth customer marketing and also puts more potential future Robotaxis on the road. It also increase their ability to increase pricing and gross margins.
So for example, if Tesla's 3/S/X Fremont run rate car demand gets to c.100k quarter, but they have a path to getting production to 120k, it would make sense to spend up to $10k/car in advertising to win the incremental 20k demand - or c.$200m per quarter (this is just an example, I doubt they're ever going to have to pay this much to boost demand to supply capacity). This would lead to significantly higher net profit than if they had sold just 100k cars with no advertising spend - even though in this extreme example the full gross profit of the 20k incremental sales was spent on advertising (because the gross profit of the other 100k cars increased due to operating leverage). This would have the added benefit of removing the incentive for the media to attack Tesla in favour of their current paying auto advertising customers.
