However, again going back to guided average sales for 2019, I am confused as to how they'll be able to get economies of scale and reduce costs w/o actually scaling up production until the very end of the year.
I think their guidance of 360k-400k deliveries in the Q4 update letter is fundamentally cautious and conservative, with the assumption of a global recession. Elon made this very clear in the conference call:
Elon Musk
"Okay. And we expect that exponential to continue. So with the deliveries this year being - even in the face of - if there's a global recession - even if there's a global recession, we're expecting deliveries this year to be about 50% higher than last year. And this - it could be a lot more than that. But even with tough economic times, to see 50% growth is pretty nutty."
In 2018 they delivered 245.5k vehicles, "about 50% higher" deliveries is 370k vehicles - right in the guidance range.
If Brexiters fail to crash the world economy out of spite I don't expect a global recession from any other source. In that case demand will increase even more - I think there's probably some pent-up demand in the U.S., EU and China already, from economic worries.
I.e. of the ~6 global recession risks that were present in Q4:
- China recession going global
- China trade war causing global recession
- Federal Reserve rate hikes causing U.S. recession
- U.S. housing market crash causing U.S. recession
- BRExit crash causing global recession
- U.S. tech sector driven U.S. recession
The probability of
all of these has decreased substantially based on latest events and based on latest economic data, with the exception of BRExit, which is still the same delusive cluster-sugar headed for a hard BRExit I warned about months ago. Today's Tusk comments made it finally really clear to everyone in the U.K. that Europe is sick of the egocentric BRExit mess and is perfectly fine with the U.K. performing economic seppuku via hard-BRExit.
Once there's a China trade deal and the UK has finally crashed out of the EU there's going to be good growth everywhere (except the UK that is - but it's a comparatively small market), and Trump certainly doesn't want a U.S. recession right before his re-election fight. The Fed is probably not going to do anything drastic, to stay out of 2020 presidential election politics.
In fact later in the conference call Elon outlined his expectations for 2019 in more detail:
Elon Musk
"I mean, my best guess, this is just a guess, my best guess for demand of Model 3 worldwide is something - in a strong economy, it's something on the order of 700,000 or 800,000 units a year. That's my best guess for demand of Model 3 in a strong economy."
"If the economy goes into a recession, then I think that could be something under 40% less. But I think even in a recession, worldwide demand is still something in the order of 500,000 for Model 3."
These numbers mean that Tesla expects 40-60% higher Model 3 demand if there is no recession. That would increase the 360k-400k guidance to well above the 500k/year supply that is available.
I.e. I think Tesla is being cautious, they have guided for a recession but are ready to jump on signs of economic growth. There's space for a
significant upside surprise.
