In this briefing:
- Las Vegas Sands: Singapore Expansion Impacts Our Valuation Now, Long Before Projected 2025 Debut
- Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
- Tesla (TSLA): 1Q Deliveries – Aging Products or the Impact of Tax Credit Phase Out?
- Quick Take on Tesla Q119 Deliveries: Yes, They Were Bad
- StubWorld: Naspers’ Restructuring Update
1. Las Vegas Sands: Singapore Expansion Impacts Our Valuation Now, Long Before Projected 2025 Debut
- LVS at $64 has runway to $80 by Q4 this year with more core catalysts than many peers.
- Just announced Singapore expansion solidifies LVS first mover MICE advantage as developer of choice in other jurisdictions.
- Singapore outlook adds credibility to LVS pole position in race for Japan IR license before year’s end, adding ballast to our PT.
2. Shanghai/Shenzhen Connect – Inflow Turned Cautious in March but MSCI Adjustment Ahead
In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.
We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.
We note that in March, northbound inflows turned more cautious vs strong inflows in February (link to our Feb note) and January (link to our Jan note). Nevertheless we see strong inflows into Healthcare sector, led by Jiangsu Hengrui Medicine Co., (600276 CH). We also highlight Universal Scientific Industrial Shanghai (601231 CH 环旭电子) in the mid cap space that attracted strong northbound inflows.
3. Tesla (TSLA): 1Q Deliveries – Aging Products or the Impact of Tax Credit Phase Out?
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&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&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&X | 21,800 | 27,550 | 12,100 | -56.1% | -44.5% |
| Total | 29,980 | 90,909 | 63,000 | -30.7% | 110.1% |
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 Tesla: A Few Thoughts on Ageing Products Before 1Q Earnings Announcement, April 10, 2018), we also believe that the drop in the Models S&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 |
4. Quick Take on Tesla Q119 Deliveries: Yes, They Were Bad
Tesla Motors (TSLA US) finally reported first-quarter production and delivery numbers late Wednesday night and, sure enough, results came in closer to my below-market estimates and trailed management guidance and market consensus (see my report Tesla’s Weak QTD Deliveries Signal March Expectation Madness).
Tesla also admitted it delivered half of its total deliveries for the entire quarter in the last nine days of March, blaming “challenges encountered” for delays in getting cars to buyers in Europe and China. But even adding cars “in transit” doesn’t cover the shortfall versus guidance and market expectations.
It also doesn’t ease investors’ concerns about cooling demand for Model 3 in the US, or the alarming drop-off in sales for Models S and X, well, everywhere.
Read on for continued Bond Angle analysis.
5. StubWorld: Naspers’ Restructuring Update
This week in StubWorld …
- Naspers Ltd (NPN SJ)‘s discount to NAV narrows as it teases out more information on spinning-off and separately listing Tencent Holdings (700 HK).
Preceding my comments on Naspers are the weekly setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.
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