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About a month ago, I talked about an area in which Tesla (TSLA) has been struggling in recent years, namely the vehicle service. With a small network of service centers and limited financial resources, parts availability is lacking and consumers have a hard time making repairs. CEO Elon Musk is committed to solving this problem over time, but it will probably take some time. I can understand that Tesla wants to provide the best customer service, but the numbers it currently provides do not match.
The service problem has really grown over time and dates back to 2016, when the company reduced its growth plans several times. Roughly, the management advised adding about 70 outlets / services for the year, but then reduced that number by half. Since then, there has been some growth, but this is not much as we see below:
(Source: Tesla investor letters, see here)
In the first three quarters of 2017, the company added 53 sales points / services to its global network. You might expect that, with the Model 3 ramp, even more growth is needed given the number of vehicles on the road. Well, in three quarters of this year the number of additions is only 21, and this is detailed in the letters to investors:
Q4 2017 Investor Newsletter: During the fourth quarter, we opened 12 new stores and service outlets, bringing the total number of our sites to 330 at the end of the year.
Q3 2018 Investor Letter: During the third quarter, we opened four new stores and service centers, representing 351 sites worldwide at the end of the quarter.
In the article related to my opening, I showed a tweet from CEO Elon Musk. It was in mid-October, when he had promised to expand the network of service centers over the next 3 to 6 months. It is usually late with things, so it probably means at least 6-12 months, but ignore it for the moment. Tesla has announced the opening of 100 new sites this year, as shown on the service page below:
(Source: Tesla Service Page, seen here)
My question here is rather simple. How does a company that has added only 21 new sites in 9 months expect to add 79 more in a few months? In addition, the company has reduced its capital expenditure forecast this year. Until the third quarter of 2018, total investment spending was $ 1.775 billion and current forecasts are less than $ 2.5 billion. These indications take into account that in the fourth quarter, there will be costs for the field and other items related to Gigafactory 3 in China. Elon Musk only realized the problem two weeks after the beginning of October. So he just could not start finding slots, getting building permits, and doing all that construction in two and a half months, especially in winter in many areas.
Given the capex necessary to continue the growth of model 3, the Gigafactory 2 extension for the solar roof and all the rest, the calculations just do not seem to add up. Unfortunately, this is not the only thing on the service page that does not make sense to me. Tesla likes to promote its fleet of mobile services, claiming that most repairs can be done outside of a service center. The essential facts of this program are presented below.
(Source: Tesla service page above)
The number of growth seems rather impressive, but let's go back to the investors' letters and see what the real numbers say (bold type added by the author):
Q4 2017: Service capacity more than doubled in 2017, thanks in part to new sites, but also thanks to a 50% increase in productivity of existing service sites, as well as to the expansion significant of our Mobile Service Fleet, which now has 230 vehicles.
Q3 2018: Our electrified Mobile service fleet continued to grow more than 373 service vehicles on the road at the end of the third quarter.
Tesla has not always provided figures on the fleet, but he indicated in his letter of Q3 2017 that he was expecting to almost double his size in 2017. Suppose it started last year at about 120. That would mean added 110 last year, how to add 153 more this year will it translate into an 8-fold increase in the fleet? It took at least 3 or 4 years to reach nearly 400 vehicles, but Tesla will add 50% more than that in just a quarter to achieve a multiplication by eight? Remember, the first chart I showed above indicated that the company was adding more than 350 mobile service vans this year, so that no figure makes sense.
I do not bring such articles just to be picky. This is because quite often the company seems to be unable to tell its story. Last month, there would have been a cut on October 15 to get a Model 3 before the end of the year, which is necessary to qualify for the full US tax credit. If you want to argue that these are "estimates" and that it is not a guarantee, you should not post any initial prices that include the total value of the credit. ;tax.
In fact, with a delivery window of 6 to 10 weeks for the mid-range version, we are under 7 weeks until the end of the year, so theoretically, most deliveries of this variant should be halved. No announcement was made that the 2018 order book would be exhausted, despite some speculation favorable to Tesla speculating that it was already the case a month ago. In fact, Elon Musk now says that you can order before November 30 and always receive delivery. The bears will therefore declare that the request has fallen to the point that the deliveries do not take much time, and there are examples of non-holders of reservations obtaining deliveries in just three days. Do not forget that Tesla has made many promises of "growth" that we are still waiting for. For example, the expansion of the European compressor expected to occur in 2016 has still not occurred, as shown in the maps below.
(Source: Tesla Supercharger website, here)
Tesla admitted that its service network is currently a problem for customers, and the manufacturer is working to resolve this problem. However, the numbers provided on its website do not seem to make sense. With a small investment budget and tepid growth so far this year, how will the company add nearly 80 service centers and several hundred mobile service vehicles in a matter of seconds? months only? It may be the plan for 2019, but it's not stated anywhere. Investors should always check the facts, because if Tesla fails to calculate his calculations correctly with something so simple, one may wonder what other more important figures might be incorrect.
Additional information from the author: investors are always reminded that before making an investment, you must exercise your own due diligence for any name directly or indirectly mentioned in this article. Investors should also consider seeking the advice of a broker or financial advisor before making any investment decisions. Any element of this article should be considered as general information and not as a formal investment recommendation.
Disclosure: I / we have / we have no position in the actions mentioned, and do not plan to initiate position in the next 72 hours.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I do not have any business relationship with a company whose actions are mentioned in this article.
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