Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/16331" target="_blank" data-smartkarma-citation="entities:16331:1">Alliance Mineral Assets (AMS SP)</a> is a dual-listed (SGX/ASX) lithium producer in Australia. Last year the company saw its share price fall by 61% from 0.45 SGD (January 2018) to 0.17 SGD recently. Investing in lithium is all about the adoption of Electrical Vehicles (EV) going forward. While <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> has been the poster child of the EV sector thus far, the next 24 months will see an onslaught of new arrivals by various brands which should expand the EV market substantially.The success of the EV segment largely depends on the improvements in battery technology and consumer choice. We reference from the excellent SmartKarma Originals piece <a href="https://www.smartkarma.com/insights/battery-technology-the-key-to-an-electric-vehicle-future" target="_blank" data-smartkarma-citation="insights:29025">Battery Technology- The Key To An Electric Vehicle Future</a> published earlier in April to conclude that lithium is likely to remain a key source for EV battery makers and Alliance Mineral's premium quality lithium will be in high demand. Should the market continue to ignore the asset value of Alliance Mineral it will likely become an attractive M&amp;A candidate for a larger lithium producer.We estimate the average cost of most of the current shareholder register is 0.30+ SGD hence the pressure on management to create lasting value is intense. With the Bald Hill mine ramping up in FY20 (June Year-End) and FY21, offtake partly secured and more agreements in the offing, shares are only trading at 2x EV/EBITDA. Its closest competitors <a href="https://www.smartkarma.com/entities/13914" target="_blank" data-smartkarma-citation="entities:13914:1">Galaxy Resources (GXY AU) and </a><a href="https://www.smartkarma.com/entities/7460" target="_blank" data-smartkarma-citation="entities:7460:1">Pilbara Minerals (PLS AU)</a><a href="https://www.smartkarma.com/entities/13914" target="_blank" data-smartkarma-citation="entities:13914:1"></a> are both trading at 8x EV/EBITDA.Our estimate of Fair Value is 0.35 SGD or 106% upside from the current share price based on an extremely conservative 4x 2020 EV/EBITDA multiple.

Alliance Mineral Assets (AMS SP) is a dual-listed (SGX/ASX) lithium producer in Australia. Last year the company saw its share price fall by 61% from 0.45 SGD (January 2018) to 0.17 SGD recently. Investing in lithium is all about the adoption of Electrical Vehicles (EV) going forward. While Tesla Motors (TSLA US) has been the poster child of the EV sector thus far, the next 24 months will see an onslaught of new arrivals by various brands which should expand the EV market substantially.The success of the EV segment largely depends on the improvements in battery technology and consumer choice. We reference from the excellent SmartKarma Originals piece Battery Technology- The Key To An Electric Vehicle Future published earlier in April to conclude that lithium is likely to remain a key source for EV battery makers and Alliance Mineral's premium quality lithium will be in high demand. Should the market continue to ignore the asset value of Alliance Mineral it will likely become an attractive M&amp;A candidate for a larger lithium producer.We estimate the average cost of most of the current shareholder register is 0.30+ SGD hence the pressure on management to create lasting value is intense. With the Bald Hill mine ramping up in FY20 (June Year-End) and FY21, offtake partly secured and more agreements in the offing, shares are only trading at 2x EV/EBITDA. Its closest competitors Galaxy Resources (GXY AU) and Pilbara Minerals (PLS AU) are both trading at 8x EV/EBITDA.Our estimate of Fair Value is 0.35 SGD or 106% upside from the current share price based on an extremely conservative 4x 2020 EV/EBITDA multiple.

Discover Singapore: Alliance Mineral; Supplies High Quality Lithium to EV; Buy at 2x 2020 EV/EBITDA

Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

<ul>
<li>Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth</li>
<li>Widespread adoption of Hydrogen considered unlikely</li>
<li>41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand</li>
<li>Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies</li>
<li>Hybrid premium ~ 8% like-for-like over a combustion vehicle </li>
<li>Carpooling/ride-share platforms have hallmarks of being a macro-trend</li>
<li>W. Asian carpool CAGR of 77.6% over past 11 years</li>
<li>Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership
</li>
<li>Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance </li>
<li>Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum</li>
<li>Primary platinum-surplus to grow in time, downward pressure on price</li>
</ul>
Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?


Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth
Widespread adoption of Hydrogen considered unlikely
41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand
Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies
Hybrid premium ~ 8% like-for-like over a combustion vehicle 
Carpooling/ride-share platforms have hallmarks of being a macro-trend
W. Asian carpool CAGR of 77.6% over past 11 years
Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership

Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance 
Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum
Primary platinum-surplus to grow in time, downward pressure on price

Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?

PGMs: Facing Technological Obsolescence? (P. 2)

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

The Nikkei reported on Thursday (11th April) that both <a href="https://www.smartkarma.com/entities/20279" target="_blank" data-smartkarma-citation="entities:20279:1">Tesla Motors (TSLA US)</a> and <a href="https://www.smartkarma.com/entities/222" target="_blank" data-smartkarma-citation="entities:222:1">Panasonic Corp (6752 JP)</a> are freezing their plans to expand capacity of their Gigafactory 1, citing the volatility of Tesla’s production and sales as a key reason. This was followed by the Nikkei reporting on Friday morning that Panasonic is cutting the “Tesla risk” by halting its share of investment in the Gigafactory. Panasonic has decided to halt its projected JPY100bn-JPY150bn ($898 million to $1.35 billion) additional investments on the Gigafactory. It is this Tesla risk that we have been continuously highlighting as a key concern for Panasonic since the first time we wrote on it. Following the news, Tesla shares fell by around 4% on Thursday’s close while Panasonic opened 3% up on Friday. Thus, starting off by refusing to join hands with Tesla in Tesla’s investment plans in China to halting investment in the jointly built US factory, Panasonic has awakened to reality, realising that its dependence on Tesla is going to continue to hurt its earnings and future business performance. We did mention in our note: <a href="https://www.smartkarma.com/insights/catl-could-be-tesla-s-new-battery-supplier-panasonic-in-trouble" target="_blank" data-smartkarma-citation="insights:28757">CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?</a>,  following circulating news on a potential CATL-Tesla pair up that, Tesla’s volatility will bring with it considerable risks for its suppliers. Further, we stated that if the news were true, Panasonic will only be hurt in the short-to-medium terms with low returns on its joint investment efforts (prospects for which now appear to be fading fast), while volatility surrounding its battery orders will decline to a greater extent over the longer term. Thus, it seems, that despite these pair-ups in the industry being announced one after the other, Panasonic itself is continuing to distance itself from Tesla, which could prove beneficial for the battery supplier’s longer-term growth. However, this halt in capacity expansion does raise concerns about the ability of the company to continue to lead the market in terms of capacity and thus its ability to spread R&amp;D costs over a wide base.

The Nikkei reported on Thursday (11th April) that both Tesla Motors (TSLA US) and Panasonic Corp (6752 JP) are freezing their plans to expand capacity of their Gigafactory 1, citing the volatility of Tesla’s production and sales as a key reason. This was followed by the Nikkei reporting on Friday morning that Panasonic is cutting the “Tesla risk” by halting its share of investment in the Gigafactory. Panasonic has decided to halt its projected JPY100bn-JPY150bn ($898 million to $1.35 billion) additional investments on the Gigafactory. It is this Tesla risk that we have been continuously highlighting as a key concern for Panasonic since the first time we wrote on it. Following the news, Tesla shares fell by around 4% on Thursday’s close while Panasonic opened 3% up on Friday. Thus, starting off by refusing to join hands with Tesla in Tesla’s investment plans in China to halting investment in the jointly built US factory, Panasonic has awakened to reality, realising that its dependence on Tesla is going to continue to hurt its earnings and future business performance. We did mention in our note: CATL Could Be Tesla’s New Battery Supplier- Panasonic in Trouble?,  following circulating news on a potential CATL-Tesla pair up that, Tesla’s volatility will bring with it considerable risks for its suppliers. Further, we stated that if the news were true, Panasonic will only be hurt in the short-to-medium terms with low returns on its joint investment efforts (prospects for which now appear to be fading fast), while volatility surrounding its battery orders will decline to a greater extent over the longer term. Thus, it seems, that despite these pair-ups in the industry being announced one after the other, Panasonic itself is continuing to distance itself from Tesla, which could prove beneficial for the battery supplier’s longer-term growth. However, this halt in capacity expansion does raise concerns about the ability of the company to continue to lead the market in terms of capacity and thus its ability to spread R&amp;D costs over a wide base.

Panasonic: Freezing Investments in Gigafactory or Freeing Itself from Tesla?

<div class="content-highlight">This Insight has been produced jointly by <a href="https://www.smartkarma.com/profiles/1806" target="_blank" data-smartkarma-citation="accounts:1806">William Keating</a> at Ingenuity and <a href="https://www.smartkarma.com/profiles/713" target="_blank" data-smartkarma-citation="accounts:713">Mio Kato, CFA</a> and <a href="https://www.smartkarma.com/profiles/1652" target="_blank" data-smartkarma-citation="accounts:1652">Aqila Ali</a> at <a href="https://www.smartkarma.com/companies/909" target="_blank" data-smartkarma-citation="companies:909">LightStream Research</a>.</div>The Insight is structured as follows:<ul>
<li>A. Key  Conclusions</li>
<li>B. Report Highlights</li>
<li>
C.History of Electric Vehicles</li>
<li>E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries</li>
<li>F. Batteries Beyond Li-ion</li>
<li>G. Supply Constraints for Key Raw Materials</li>
<li>H. The Competitive Landscape</li>
</ul><hr><h2>A. Key  Conclusions</h2>Global sales of EV's reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there's nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors. Quite apart from the technology,  the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework.

This Insight has been produced jointly by William Keating at Ingenuity and Mio Kato, CFA and Aqila Ali at LightStream Research.The Insight is structured as follows:
A. Key  Conclusions
B. Report Highlights

C.History of Electric Vehicles
E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
F. Batteries Beyond Li-ion
G. Supply Constraints for Key Raw Materials
H. The Competitive Landscape
A. Key  ConclusionsGlobal sales of EV's reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there's nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors. Quite apart from the technology,  the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework. 

Battery Technology- The Key To An Electric Vehicle Future

Consumer Discretionary / Industrials

Henry Kwon

Tesla's 1Q delivery details released yesterday suggests one of three possible reasons for the dramatic drop across the company's product lineup - either the impact of the federal tax credit phaseout is beginning to hit Tesla's sales, the sales reflect an aging product portfolio or a combination of both.   We suspect that it might be a combination of the two.Excitement over a new product typically lasts for 6-12 months, then should show a stabilizing pattern.  To be honest, the Model 3 should now be a mid-cycle product in the minds of consumers since the car has been around since mid 2017, although analysts' clock began ticking on the product in 2Q18 given their P&amp;L focus.  We are now in the 10th month following normalization of the Model 3 production which would suggest that we should be anticipating a Model 3 delivery range of 50-65,000 units based on delivery patterns for the past 3 quarters, but we also believe investors should keep in mind that for Tesla the federal tax credit phaseout kicked in on January 1, 2019.  The combination of these two factors could have very well led to a drop in deliveries in 1Q, with a 4Q18 front-load effect.  This seems to be especially noticeable on the drop in the deliveries of Models S&amp;X that few analysts on the street seem to have focused on following Tesla's press release.  We believe what is sorely needed for Tesla as a brand is a product portfolio refresh, not Model Y launch at this point.Given the above, we would be inclined to model in a 200-250k units of the Model 3 deliveries in 2019 at this point, which would be conservative compared to the 360-400k units that Tesla is currently guiding.  The wild card would be if China demand for the Model 3 exceeds the initial indications of about 10k units per quarter (see JL Warren Capital's <a href="https://www.smartkarma.com/insights/tesla-china-q1-delivery-revision" target="_blank" data-smartkarma-citation="insights:29006">Tesla China Q1 Delivery Revision</a> ), which should be included in the 1Q shipment figures that were released by the company.<table class="table table-striped"><tbody>
<tr><td colspan="6" style="text-align: center;">Tesla: Global Deliveries 1Q19</td></tr>
<tr>
<td style="text-align: center;">(Units)</td>
<td style="text-align: center;">1Q18</td>
<td style="text-align: center;">4Q18</td>
<td style="text-align: center;">1Q19</td>
<td style="text-align: center;">QoQ</td>
<td style="text-align: center;">YoY</td>
</tr>
<tr>
<td>Model 3</td>
<td style="text-align: center;">8,180</td>
<td style="text-align: center;">63,359</td>
<td style="text-align: center;">50,900</td>
<td style="text-align: center;">-19.7%</td>
<td style="text-align: center;">522.2%</td>
</tr>
<tr>
<td>Models S&amp;X</td>
<td style="text-align: center;">21,800</td>
<td style="text-align: center;">27,550</td>
<td style="text-align: center;">12,100</td>
<td style="text-align: center;">-56.1%</td>
<td style="text-align: center;">-44.5%</td>
</tr>
<tr>
<td>Total</td>
<td style="text-align: center;">29,980</td>
<td style="text-align: center;">90,909</td>
<td style="text-align: center;">63,000</td>
<td style="text-align: center;">-30.7%</td>
<td style="text-align: center;">110.1%</td>
</tr>
</tbody></table><div class="content-caption">Source: Company Data</div>U.S. federal tax credit for EVs begin to phase out for EV manufacturers once the OEM hits cumulative sales of 200k units, and Tesla achieved this landmark back in July 2018.  The actual phaseout for the company began on January 1, 2019.  Granted we have been concerned about Tesla's aging product portfolio for the past year (see <a href="https://www.smartkarma.com/insights/tesla-a-few-thoughts-on-ageing-products-before-2q-earnings-announcement" target="_blank" data-smartkarma-citation="insights:19285">Tesla: A Few Thoughts on Ageing Products Before 1Q Earnings Announcement</a>, April 10, 2018), we also believe that the drop in the Models S&amp;X deliveries in 1Q19 is highly likely to have been exacerbated by the tax credit phaseout and/or other factors.<table class="table table-striped"><tbody>
<tr><td colspan="2" style="text-align: center;">Tesla's Federal Tax Credit Phaseout Schedule</td></tr>
<tr>
<td style="text-align: center;">Federal Tax Credit</td>
<td style="text-align: center;">For Vehicles Delivered</td>
</tr>
<tr>
<td style="text-align: center;"> $7,500.00</td>
<td style="text-align: center;">On or before Dec. 31, 2018</td>
</tr>
<tr>
<td style="text-align: center;"> $3,750.00</td>
<td style="text-align: center;">Jan 1-Jun 30, 2019</td>
</tr>
<tr>
<td style="text-align: center;"> $1,875.00</td>
<td style="text-align: center;">Jul 1-Dec 31, 2019</td>
</tr>
</tbody></table><div class="content-caption">Source: Company Data</div>

Tesla's 1Q delivery details released yesterday suggests one of three possible reasons for the dramatic drop across the company's product lineup - either the impact of the federal tax credit phaseout is beginning to hit Tesla's sales, the sales reflect an aging product portfolio or a combination of both.   We suspect that it might be a combination of the two.Excitement over a new product typically lasts for 6-12 months, then should show a stabilizing pattern.  To be honest, the Model 3 should now be a mid-cycle product in the minds of consumers since the car has been around since mid 2017, although analysts' clock began ticking on the product in 2Q18 given their P&amp;L focus.  We are now in the 10th month following normalization of the Model 3 production which would suggest that we should be anticipating a Model 3 delivery range of 50-65,000 units based on delivery patterns for the past 3 quarters, but we also believe investors should keep in mind that for Tesla the federal tax credit phaseout kicked in on January 1, 2019.  The combination of these two factors could have very well led to a drop in deliveries in 1Q, with a 4Q18 front-load effect.  This seems to be especially noticeable on the drop in the deliveries of Models S&amp;X that few analysts on the street seem to have focused on following Tesla's press release.  We believe what is sorely needed for Tesla as a brand is a product portfolio refresh, not Model Y launch at this point.Given the above, we would be inclined to model in a 200-250k units of the Model 3 deliveries in 2019 at this point, which would be conservative compared to the 360-400k units that Tesla is currently guiding.  The wild card would be if China demand for the Model 3 exceeds the initial indications of about 10k units per quarter (see JL Warren Capital's Tesla China Q1 Delivery Revision ), which should be included in the 1Q shipment figures that were released by the company.
Tesla: Global Deliveries 1Q19

(Units)
1Q18
4Q18
1Q19
QoQ
YoY


Model 3
8,180
63,359
50,900
-19.7%
522.2%


Models S&amp;X
21,800
27,550
12,100
-56.1%
-44.5%


Total
29,980
90,909
63,000
-30.7%
110.1%

Source: Company DataU.S. federal tax credit for EVs begin to phase out for EV manufacturers once the OEM hits cumulative sales of 200k units, and Tesla achieved this landmark back in July 2018.  The actual phaseout for the company began on January 1, 2019.  Granted we have been concerned about Tesla's aging product portfolio for the past year (see Tesla: A Few Thoughts on Ageing Products Before 1Q Earnings Announcement, April 10, 2018), we also believe that the drop in the Models S&amp;X deliveries in 1Q19 is highly likely to have been exacerbated by the tax credit phaseout and/or other factors.
Tesla's Federal Tax Credit Phaseout Schedule

Federal Tax Credit
For Vehicles Delivered


 $7,500.00
On or before Dec. 31, 2018


 $3,750.00
Jan 1-Jun 30, 2019


 $1,875.00
Jul 1-Dec 31, 2019

Source: Company Data

Tesla (TSLA): 1Q Deliveries - Aging Products or the Impact of Tax Credit Phase Out?

United States

Tesla Inc. operates as a multinational automotive and clean energy company. The Company designs and manufactures electric vehicles, battery energy storage from home to grid-scale, solar panels and solar roof tiles, and related products and services. Tesla owns its sales and service network and sells electric power train components to other automobile manufacturers.

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