JL Warren: 6000 Teslas Unsold In China. Not True, Says Tesla

Tesla Model S vehicles parked outside a car dealership in Shanghai. (Photo: JOHANNES EISELE/AFP/Getty Images)

For global OEMs such as Volkswagen, or General Motors, China has long become their largest market. For Californian electric car maker Tesla, China may have become a dumping ground for unsold cars. This is the impression one gets when reading a research note by respected China focused equity research firm JL Warren Capital. According to the note, some 7,000 Tesla cars were shipped to China this year, and some 6,000 remain “unregistered” -- industry parlance for sitting somewhere, waiting to be put on the road.

The research note arrived last Thursday in the in-boxes of the select few that can afford JL Warren’s considerable fees. On that day, Tesla’s high-flying stock lost 10 bucks of altitude. Most of the dip was erased on Friday. Running the numbers, clued-in analysts were tempted to calculate that by the end of May, enough Tesla cars were sitting in China to last nine months of sales.

Months of supply are a central data point in the auto business. One to two months’ worth of cars sitting on the lot is considered O.K. More is bad. Shortly before their bankruptcy in 2009, GM and Chrysler both had more than five months' supply of unsold cars, Time Magazine wrote. When, by the end of last year, GM had a little less than three months of U.S. supply of unsold new vehicles, it shut five of its U.S. auto assembly plants until the cars on dealer lots caught up with demand, said Fortune.

If the nine months’ worth of unsold cars in China are correct (and Tesla, see below, says it’s bunk) the Tesla’s narrative of “supply constraint” would need a little editing.

Data by JLWarren

Supply constrained would look different

JL Warren’s head of China Research, Junheng Li, (the JL in JL Warren) receives her import numbers from an ironclad source: Customs documents. The number of registered cars is a bit harder to come by. China’s government does not routinely publish registration numbers, unlike governments in Europe, Japan, and elsewhere do. In the past, China registration numbers could be obtained from provincial Public Security Bureaus. A while ago, orders were received from above to stop handing the registration data. Since then, professional data houses like JATO Dynamics, Polk, or IHS are forced to generate the registration data using proprietary methods, such as insurance sign-ups as a proxy. Therefore, the number of China registrations usually won’t match actual sales down to the last digits. It is the trend that counts. And the trend of unregistered Tesla cars in China definitely goes up, JL Warren’s spreadsheet says.

Looking at the trend, one can expect that Tesla’s exports to China in the 2^nd quarter of 2017 will have broken all records again. If the current trajectory was maintained in June, Tesla could have shipped more than 6,000 units to China in the 2^nd quarter of the year, compared with 4,800 in Q1. Tesla’s alleged “severe production shortfall” that put a damper on global deliveries in the 2^nd quarter did not seem to impede shipments to China: In the months of April and May, Tesla’s China shipments climbed 32% over shipments in January and February, says JL Warren. Once JL Warren has crunched the numbers on June’s bills of lading, we will see whether the severe production shortfall has reached China, and whether that will cause the number of unregistered cars to ease a bit. Usually, China shipments shoot up in the last end of the quarter.

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