You probably would have heard about it if Tesla (TSLA:$235, up 4% this week) missed its 2Q delivery target. But since Elon Musk made good on his promise in a news-heavy holiday week, the only sound came from short sellers crying.
Musk vowed back in May that he wanted to deliver not only 90,000 cars in the recently closed quarter but beat the 90,700 record hit last year over the holidays. He ended up booking 95,200, with 77,000 of them being the mass-market Model 3.
This was an essential number to hit after signs of demand-drag early this year thanks to the expiration of environmental vehicle credits here in the U.S. and glitches in shipping cars to European customers. A lot of people jumped to conclusions and decided that the Model 3 just won't sell in compelling numbers, pulling Tesla down 30% YTD as the gloom spread.
But we never gave up. We're impressed first and foremost by the way that deliveries ran above production, which is essential as Musk tries to work down the slight inventory overhang he developed early this year. The order backlog is growing, so he seems to be hitting the right scale for the time being.
These aren't signals that entry-level Model 3 sales are going off a cliff or even cannibalizing the market for the higher-end $75,000 sedans. The Tesla audience is still growing. If anything, it's expanding faster than ever now in terms of real numbers. There are now nearly 200,000 Model 3s on the world's roads and the company can double that number in the coming year at current production levels, realizing the strong growth promise that drew investors to Tesla in the first place.
Admittedly, Musk had to incentivize his sales team to make these numbers happen, but it's clear to everyone now that the market isn't saturated yet. With gas prices back on the rise, it only takes a few thousand households switching to electric cars to keep Tesla sales steady if not rapidly expanding. Converting 300,000 households a year means swaying only 0.2% of the U.S. population. There's vast space left here for Musk to capture.
And even at this scale, Tesla has enough cash coming in to return to profitability. A quick calculation indicates around $4.7 billion in gross revenue from these deliveries, which, counting the Home Battery business, should be enough to push the company back above breakeven, or close to it. From there, Musk gets a whole lot of breathing room. We're eager to see where he goes. These are the fireworks we wanted.