In Tesla Motors' quarterly shareholder letter earlier this month, the electric-car maker highlighted some key insights into what demand looks like for its vehicles. The company's ongoing ability to seemingly increase demand for its cars at will -- even as it refrains from spending money on advertising -- suggests all-electric vehicles have the potential to appeal to a very large market.
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The Tesla Model S. Image source: Tesla Motors.
Model S demand
For Tesla's Model S, which accounts for the majority of its sales, demand is looking up.
"Model S demand grew globally," Tesla said in its second-quarter shareholder letter.
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More specifically, Tesla said Model S orders during the quarter were up 45% compared to the year-ago quarter. And Tesla noted that global order rates for the vehicle had actually accelerated. We also know from Tesla's fourth-quarter shareholder letter that Model S year-over-year order growth in the prior quarter was 35%, "with growth in all regions." So, the sequential increase between Q4 and Q1 in year-over-year Model S order growth rates was meaningful.
Notably, this level of demand for Model S was achieved before the company refreshed the Model S in April with an enhanced look for the front of the car and nearly 300 part changes.
Continued growth in Model S orders is good news for Tesla investors because there was some concern that the company's late 2015 launch of its Model X SUV would result in some cannibalization of Model S sales. But as production of theModel X finally begins ramping up, it appears the SUV might even be a catalyst to overall sales.
Model X demand
With Tesla racking up around 30,000 deposit-backed orders for the Model X by the beginning of the year, the key demand metric the company has been focusing on is its conversion rate of reservations to actual orders.
Model X. Image source: Tesla Motors.
Management said in Tesla's first-quarter shareholder letter it is satisfied with Model X reservation conversions.
"The growth in Model S orders and the Model X reservation conversion rate support our plan of 80,000 to 90,000 deliveries in 2016," Tesla said in its first-quarter shareholder letter.
It's worth emphasizing that Tesla clearly doesn't seem to be concerned about Model X demand, since it hadn't yet started displaying the SUV in stores or giving to test drives to non-reservation holders during the quarter.
By the end of Q1, Tesla had only produced around 3,200 Model X units. The company will need to continue to ramp up deliveries before it makes a dent in the pent-up demand for the much delayed vehicle
Tesla hopes weekly Model X production and deliveries will rival Model S deliveries by the end of this year. Currently, Tesla is delivering more than 12,000 Model S units a quarter -- well ahead of Model X quarterly deliveries of 2,400 in Q1.
Model 3. Image source: Tesla Motors.
The Model 3 effect
Many investors wondered how Tesla's unveiling of its Model 3 --
Released on the evening of last day of Q1, Model 3's impact on orders and Model X conversion rates won't be seen until Tesla reports second-quarter results.
Growing demand for Tesla's vehicles is making acompelling case that all-electric vehicles will eventually gain mass-market appeal. Further, Tesla's demand trajectory is helping minimize some of the risk in the growth priced into the stock.