In this briefing:
- 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
- MTG Co Ltd; Problems Stretch Far Beyond the New Chinese E-Commerce Legislation
- Naspers: Addressing the Discount (Again). New Moves to Realize Value Are Having an Impact
1. 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 |
2. 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.
3. 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%.
4. MTG Co Ltd; Problems Stretch Far Beyond the New Chinese E-Commerce Legislation
- MTG revised their original targets for FY2019 and issued revised targets which were significantly below the original targets
- The share price has already been on the decline even prior to the notice of revised targets
- Declining inbound sales of its flagship brand ReFa is the main culprit for guidance reversion
- The impact of Chinese e-commerce legislation was significant due to limited exposure to pure inbound sales
- Parallel buyers, those who buy products to resell them in China: dominates MTG’s inbound sales
- MTG’s price difference in Japan duty-free purchases vs official sales channels in China
- The Troubles of MTG, Causing Panic Among Consensus
- Insider ownership and lack of free float keeping the share price above its fair value
- Price to book approaching 1.0x; limits the immediate downside risk
5. Naspers: Addressing the Discount (Again). New Moves to Realize Value Are Having an Impact
Naspers (NPN SJ) recently announced another attempt to reduce the holdco discount which has remained stubbornly high despite previous attempts by management to reduce it. Since the announcement there has been movement, so perhaps this time it really is different!
So what is being done? Naspers will spin off its international internet assets, which account for >99% of its value, into a newco. They will then list 25% of newco on the Euronext in Amsterdam by issuing these shares to Naspers’ shareholders. The intention is to create a vehicle which can attract increased foreign and tech investors without the complication of a South African listing. The company believes this has been a key factor behind the wide holdco discount. The move also reduces Naspers weighting in South African indices which is another contributing factor.
Alastair Jones sees the announcement as a positive, although there are still issues with the main listing being in South Africa. He still believes a buyback would be the most effective way to reduce the discount, but Naspers is also keen to keep investing.
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