it depends on the meaning of the phrase demand problem. I think the phrase is vague.
Personally I would say there is a demand concern whenever orders are incoming at a rate slower than production (or near future production), especially when wait times are already short. It’s a concern, in that it means it needs to be addressed. And this definitely happened in late q4.
I assume when you say there’s never a demand problem, you’re referring to the fact that Tesla has plenty of demand levers to pull to address any demand concerns, before taking the last resort of slowing production growth?
I.e. It seems like you believe having demand problems and being (or about to become) demand constrained are synonymous phrases?
Yes, the historical use of the phrase "demand problem" is that it's a problem. For example, if it costs $10 to make an item in high volumes but you can only sell those volumes if you lower the price to $8, then that's a demand problem. Maybe they could fix their demand problem by advertising the product, bringing the cost per item to 11$ if that would allow them to sell full production at $12 per item. Maybe not, it depends upon the specific circumstance.
Tesla has a lot of demand levers as you mentioned and the most powerful one is their superior pricing power. In the auto market, sales are very sensitive to price. I've written about this right here many times but I'm repeating it yet again because it seems there are a number of people who don't understand just how sensitive auto sales are to price, especially at the price ranges Tesla has designed their high-volume models around. As the price is lowered, the addressable market expands dramatically, and new demand is unleashed. Tesla has tremendous demand for their products by people who cannot reasonably afford the price.
It is utter foolishness or FUD to talk as if Tesla has a demand problem when their auto margins are 3 to 7 times that of traditional automakers which are Tesla's biggest competitors, and when Tesla's EV "competitors" have margins hovering around zero. It's non-sensical because of course Tesla is going to adjust prices higher or lower to absorb natural variations in demand. That's not a problem, that's how it works. It's only a demand problem when you no longer have any pricing power left. Had Tesla not raised the prices in response to unprecedented demand, they wouldn't have had to lower them.
This phrase was first applied to Tesla in the context of people not wanting electric cars. The idea that was presented was that as soon as Tesla has sold to a few rich and rabid environmentalists, they would run out of new buyers willing to pay six figures for an electric car. Tesla has now sold hundreds of thousands of cars in the six-figure range.
Multiple times a year since 2012, the TSLAQ types and Wall Street analysts re-introduce the notion that Tesla has saturated the market and is developing a demand problem. I get it, people are gullible to fear tactics like this, but when margins are approaching 30% of the cost of the car, it's obviously false. Remember, pricing is how you match production to demand, it's only a problem if you run out of pricing power. Prices will go up and down. You could identify a real demand problem if Tesla constantly lowered prices and the demand was not responding, such that had to keep lowering prices and were running out of room to so. That has not happened and yet the same Chicken Little types continue to discuss "demand issues" as if it's a real and important topic of the day. The only thing that's real here is that demand and pricing are inexorably linked and, with the most pricing power in the industry, Tesla is the last manufacturer to run into a demand problem.
Legacy auto has a long history of selling early and mid-production at good margins but it's not unusual for them to get rid of the remaining inventory as the year draws to a close at cost, or even a loss if you count all the incentives and advertising to move the end of the year inventory. That's because they are competing with equally inefficient competitors, and everyone wants higher volumes and demand is highly sensitive to pricing. Tesla sales are eating into those sales because Tesla is offering new car buyers more value for their dollar. And there is still a lot of eating to be had as is evidenced by their far superior pricing power. Legacy auto has no significant pricing power left.
Even more repulsive are the people who push the idea that not only does Tesla have a demand problem, but it's also caused by Elon's Tweets. Really? Softer demand is the natural result of the economy flirting with recession and people feeling poorer with their retirement accounts declining and worries about their financial futures. People who believe that narrative need to realize that lack of money and lack of confidence is what's driving less robust demand for Tesla, not Mr. Tweet. Money matters. This should be obvious to even the biggest dimwit because the entire auto market is depressed. Is Elon responsible for that too? Actually he is, but not in the way these people believe. It's like a religion, people who think the man who made Tesla great is somehow a net negative for Tesla demand. Elon is one of Tesla's primary driver of sales beyond the products themselves.
People who call pricing adjustments, at these margin levels, a "demand problem" are either trying to harm Tesla (or TSLA) or they simply don't understand how the auto business works. And Tesla is not resting on their laurels, they are constantly working to prevent Tesla from becoming demand limited in the future because Tesla doesn't get to 20 million vehicles per year without offering even more value than they do currently. Prices need to continue to come down while the value offered needs to continually rise. Tesla gets that. That's why they have front and rear gigacastings for the Model Y, project Highland for the Model 3, and it's why the Cybertruck uses such innovative construction. It's also why Tesla, an "auto company", is perfecting pilot production of the 4680 cells. Tesla is focused like a laser on offering ever-increasing value, not as a reaction to a "demand problem" but because they know that demand problems are not compatible with the kind of success they want to achieve. With only 1.8% of the global light vehicle market and 3.9% of the US market (2022 figures) no other major manufacturer can prevent Tesla from continuing to eat into the sales.
Legacy auto has demand problems, not Tesla. Yet, I haven't seen a single article in the automotive
or investment media about how Ford's most important cash cow, the F-150, has a demand problem while the media is full of stories about Tesla's alleged demand problems. It's a false narrative to hide who really has serious demand problems. This is what a demand problem looks like:
F-series sales in the US
2017 896,764
2018 909,330
2019 896,526
2020 787,372
2021 726,003
2022 653,957
This is what a demand problem doesn't look like:
Tesla vehicle sales in the US
2017 50,067
2018 197,517
2019 195,125
2020 292,902
2021 301,998
2022 536,069
If you want to show us how gullible you are, all you need to do is explain that F-150 sales have declined 4 years in a row due to supply issues. Because that's what they have been telling us, and the media laps it up like good little lap dogs. Tesla tells them they have strong demand, and all the media can talk about are Tesla's "demand problems".