Tesla Set for Monster Quarter of Deliveries, as Shanghai, Berlin & Texas Ramp, Says New Street Research

Photo: Wu Wa/YouTube

Tesla's recent reduction in wait times for delivery of vehicles may have led to the idea that demand for the manufacturer's vehicles is falling, but this is not the case. Tesla (NASDAQ: TSLA) is set for a monster quarter in terms of deliveries, as Shanghai, Berlin, and Texas ramp, says a New Street Research analyst.

Over the past few weeks, we have repeatedly noticed a reduction in wait times for delivery of Tesla vehicles manufactured at Giga Shanghai. New Street Research analyst Pierre Ferragu, in a research note, urges not to panic, as this does not in any way indicate a decrease in demand. The analyst points out that Tesla has been able to cut wait times by 40-60%, reflecting only the normalization of the backlog after accelerating in the first half of the year. He says that even with a steady increase in orders, irregular increases in production capacity mean wait times are inconsistent. The firm's research indicates that orders accelerated again this quarter, despite a reduction in estimated wait times.

Ferragu emphasizes that Q3 2022 results will be impressive as Giga Shanghai, Giga Berlin, and Giga Texas continue to ramp up production.

“Tesla set for a monster quarter in terms of deliveries, as Shanghai, Berlin, and Texas ramp. Taking into account the recent decline in wait time, we still expect order growth to resume. Backlog won't increase much, though, as production capacity increases significantly.”

New Street Research expects orders to continue to grow at a relatively steady rate of around 50% per annum in the coming years, in line with Tesla's plan. At the same time, production capacity will increase from about 2 million by the end of 2022 to 4 million by the end of 2024. The firm expects 'bursts' to increase in production and deliveries, reflecting a phased increase in capacity. Meanwhile, delivery wait times will fluctuate.

New Street Research expects free cash flow over $4.5bn as it will be driven by an increase in volume and a working capital tailwind:

• Auto revenues - $21.3bn: 381k cars in 3Q22 vs. 255k cars in 2Q, as Shanghai returns to full production and Berlin & Texas ramp.
• Cash cost paid in the quarter - $8.4bn: manufacturing cash cost and cash opex on 381k cars. Raw materials cost of around 1/3rd of the cars, remainder only payable next quarter.
• Cash cost paid for cars sold in previous quarter $5.2bn: cash out on 2/3rd of the raw materials used for the 255k cars sold in 2Q22 (60-90 day payment terms).
• Other Working Capital & others - $1.3bn: primarily higher inventory & receivables ($0.7bn).

Ferragu sees that production capacity continues to ramp. He points out that Fremont is close to the full capacity of 650,000 vehicles a year, and there is still some room for expansion. Giga Shanghai already had an installed capacity of over 750,000 cars by mid-2022, but plans to build a second factory with a production capacity of 450,000 care a year. Giga Berlin and Giga Texas have an installed capacity of over 250,000 cars per year, but are still in the early stages of ramping up production. The analyst expects a production capacity of each to reach 500,000 vehicles per year by the end of 2023.

© 2022, Eva Fox | Tesmanian. All rights reserved.

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This article is for informational purposes only. You should not construe any such information or other material as an investment, financial, or other advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Eva Fox, Tesmanian, or any third party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

Eva Fox holds zero shares of Tesla, Inc., and currently (at the time of this article's publishing) holds zero options or securities in Tesla Inc. and/or its affiliates.