Tesla’s in the third version of ‘hell’ with its Model 3 — and it launching an SUV could make even things worse (TSLA)

Rebecca Cook / Reuters

Tesla has gone from one iteration of hell to another, one particularly bearish analyst told Markets Insider this week.
The electric vehicle manufacturer is now in a "demand hell." That’s after Tesla went through what CEO Elon Musk dubbed "production hell" and "delivery logistics hell."
A handful of Wall Street analysts have sounded the alarm over demand as a core problem for Tesla now, and one that’s more fundamental than production and means of delivery.
Tesla will on Thursday unveil its Model Y SUV, a car which could spur a new wave of demand.
Watch Tesla trade in real-time.

How many versions of hell can one car go through?

Tesla has gone through what CEO Elon Musk dubbed "production hell" and "delivery logistics hell" over the last two years with the Model 3. Now, there’s a new version of hell on the lips of at least one Wall Street analyst: "demand hell."

Gordon Johnson, an analyst at New York-based Vertical Group, told Markets Insider by phone on Wednesday that vehicle demand is a major issue for Tesla right now, as competition heats up across the electric vehicle market once dominated by Tesla alone.

"Tesla has a demand problem," Johnson said in a phone interview on Wednesday. "The demand problem is the Model 3 is not a mass-market car. It’s a luxury car."

"Elon Musk has talked about production hell, delivery hell. I think what they’re in now is demand hell," Johnson said, referring to disappointing Model 3 sales and waning demand in the US and China alike. In late February, Tesla unveiled its long-awaited $35,000 Model 3.

Demand appears to have been at least partially driven by the US federal tax credit for electric vehicles. Goldman noted the price after the $7,500 credit would have been comparable to a well-appointed Toyota Camry.

As my colleague Arjun Reddy reported, customers placed 450,000 deposits for the Model 3 well ahead of its launch, starting in 2016. He wrote recently:

Demand now appears to be flagging with many of those deposits refunded as the tax credit is now being phased out. Many customers have also became frustrated with the extended wait for the $35,000 Model 3, canceling their orders. Currently, there is no backlog for Model 3 delivery in the US, with an estimated delivery time for the $35,000 vehicle ranging from six to eight weeks, according to Tesla’s website.

Elon Musk has said that "demand for Model 3 is insanely high," but that the "inhibitor is affordability."

To be clear, Johnson is the biggest Tesla bear on Wall Street, according to analysts surveyed by Bloomberg, with a $72 price target on the stock that implies around a 75% drop from current levels.

But he’s not the only one sounding the alarm on demand for new Tesla Model 3s. On Tuesday, Morgan Stanley slashed its price target on the stock for a second time in as many months amid a host of issues, including demand for their vehicles.

"At a high level, a number of recent events at the company are raising questions in the minds of investors … including statements by Elon Musk and changes in key senior management … now the decision to close stores and moves to continue to reduce headcount," a team of analysts led by Adam Jonas wrote in a note to investors.

On Wednesday, Goldman Sachs analyst David Tamberrino told investors that the Model Y SUV crossover, set for release on Thursday, could "further weigh on Model 3 demand as consumers decide to wait a little longer to purchase a Tesla crossover vehicle."

Longtime Tesla bull Gene Munster estimated the Model Y could double Tesla’s total addressable market.

"The Model Y is important because entering the SUV/cross over market effectively doubles Tesla’s addressable market, but we caution it will likely take two years before the $39k model will be available," he said.

Here’s a brief history of the hells Tesla has endured, in the words of CEO Elon Musk, and how analysts view it now.

‘Production hell’

Matthew DeBord/BI

In July, 2017, Elon Musk said at a press conference that Tesla would suffer manufacturing challenges as Model 3 production was underway.

"We’re going to go through at least six months of production hell," he said.

Musk said the anticipated Model 3 production hell would be "less hellish than the hells the company endured with its previous three vehicles, the original Roadster, the Model S sedan, and the Model X SUV," Business Insider’s Matthew DeBord reported.

Tesla shares were trading around $297 per share, or a little more than 1% below current levels.

‘Delivery logistics hell’

Lucy Nicholson/Reuters

A little over one year later, in September 2018, Musk said in a tweet responding to a customer complaint that the company had moved from "production hell" and was in "delivery logistics hell."

"Sorry, we’ve gone from production hell to delivery logistics hell, but this problem is far more tractable," Musk said in a tweet. "We’re making rapid progress. Should be solved shortly."

That response about vehicle delivery issues came one month after he posted his infamous "funding secured" tweet — and just before he settled fraud charges with the Securities and Exchange Commission and stepped down as chairman of Tesla’s board.

The chief executive had indicated, prior to his "delivery logistics hell" tweet, that Tesla customers may face a longer response time due to increased delivery volume in North America.

That day, when Musk tweeted about this new hellscape, Tesla shares closed at $294.84 per share, or just over 1% higher than current levels.

‘Demand hell’

Reuters

Now, ahead of Tesla’s Model Y crossover SUV unveiling on Thursday, analysts are sounding the alarm on demand issues surrounding the electric automaker.

The most bearish Tesla analyst on Wall Street, Vertical Group’s Gordon Johnson, told Markets Insider this week that it’s yet another iteration of "hell" for the company.

Demand is waning in the US and China, Johnson said, as competition heats up across the electric vehicle market that was once essentially occupied by Tesla alone.

When reached for comment, Tesla referred Markets Insider to comments from Musk on the company’s latest earnings call.

"It’s important to appreciate, the demand for Model 3 is insanely high," Musk said. "The inhibitor is affordability. It’s just like people literally don’t have the money to buy the car. It’s got nothing to do with desire. They just don’t have enough money in their bank account. If the car can be made more affordable, the demand is extraordinary."

Tesla shares have fallen nearly 13% so far this year.

See the rest of the story at Business Insider