Via SeekingAlpha.com

NOTE: A version of this article was first published on or about April 20, 2020, on my Seeking Alpha Marketplace site.

Tesla (TSLA) stock has approximately doubled over the last month, from its brief lows, recapturing a majority of its losses after the equally abrupt peak in early Q1. Let’s analyze the fundamental rationales for why shareholder optimism for Tesla suddenly went through the roof.

I say “fundamental” in the real sense, as opposed to nominal. Clearly the whole market has been lifted by actions from the Federal Reserve, which effectively devalues the US dollar in relation to real assets, whether gold or stocks. In nominal terms, in theory all stocks could therefore go up, all the time – just given enough inflation (US dollar devaluation).

Automakers are not cutting many development projects

At the heart of the latest bull run for Tesla is the idea that Tesla somehow stands to benefit from the virus/shutdown crisis. Peeling the onion one layer back from the surface, one main idea there in turn is that other automakers will abandon at least some of its electric car plans.

This argument is at best only marginally true. These kinds of new vehicle development programs typically take 4-6 years, with some minor exceptions (Ford Mustang Mach-E was faster).

One of the things that the automakers learned from the 2008 recession is that cutting back on new vehicle development programs turned out to be short sighted. While being hard nosed about cost, perhaps having to cut salaries, will be necessary – canning the actual development programs would be something that they will regret within a decade. Therefore, especially if the automakers think this recession/depression dip will last only a couple of quarters, they are unlikely to cut anything material on the new product development front.

So, that argument for Tesla’s stock rebound doesn’t hold. Tesla’s competition in the EV world isn’t going away to any material or meaningful degree as a result of this crisis. Tesla is still losing EV market share in Europe in particular, and more competition arrives every quarter in all geographies.

China: Tesla’s competition also is up and running

The other argument is China. Tesla’s factory in Shanghai returned after its brief shutdown and is producing at an admirable pace. Sales were apparently strong in March, pointing to Tesla being able to fill its factory’s 150,000 unit capacity at least in the near term: Tesla China registrations jump with Shanghai pumping out Model 3s.

However, that argument seems to fail to take into account that (all or most?) relevant Chinese automotive factories also are up and running now. Of particular interest is Geely’s factory in Luqiao, where production of the Polestar 2 started in March: Polestar Media Newsroom.

For reference, Geely owns or otherwise controls the Volvo and Polestar brands. The Polestar 2 is as direct of a competitor to the Tesla Model 3 and Y as is available now. It will be on sale in China, Europe and the U.S. in various stages between now and Q3.

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Behind the Polestar 2 comes the Polestar 3. It arrives in 2022 and looks like this: New Polestar 3 electric SUV to target Jaguar’s I-Pace | Auto Express. Would you agree that it may be the best-looking electric car to date?

There’s no question that, all other things equal, Tesla’s factory in China will contribute to sales. However, there’s nothing new about the competitive climate in China that we didn’t already know at the end of 2019. Tesla’s position there hasn’t magically improved since then. It’s still all the same players, with all the same factories, launching and producing products that were developed over the 4-6 previous years.

The problem: Consumer demand and product mix

Let’s disregard for a moment that Tesla’s only car factory outside the U.S. – Fremont, CA – isn’t producing cars. Instead, pretend for a moment that Tesla was producing cars at full tilt – just over 112,500 per quarter in Fremont (Q4 sales level), plus 37,500 per quarter in China (150,000 annual capacity, divided by four), for approximately 150,000 per quarter in total.

Rather, the problem is the health of the consumer today, at least outside of China for the sake of argument. For a regular consumer, buying a new car is a discretionary purchase that can be postponed in most cases, at least for a couple of quarters if nothing else.

In case you haven’t noticed, car dealerships in many countries and many U.S. states are more or less closed, and consumers are under various lockdown orders. There’s a reason Tesla laid off half of its US sales and delivery staff in recent weeks: Tesla furloughs hit half of US sales and delivery employees.

Therefore, right now, it almost doesn’t matter how many cars Tesla could produce (right now: Zero outside of China) because the consumer is relatively unable or unwilling to buy cars in many important geographies. Soon enough, the lockdowns will end and people will become more physically able to buy cars – but when will the consumer become financially able and willing to buy? That return to “normalcy” could take a year or more.

Cars vs. pickup trucks and panel vans

If the consumer will be reluctant or unable to buy regular cars (sedans, crossovers, SUVs etc.) over at least the next two quarters, is there any light vehicle segment that is likely to outperform relatively? I say “relatively” because I still believe that such other segments will still decline in absolute terms – just not as much as more regular “cars.”

It seems that pickup trucks and panel (delivery) vans will outperform regular “cars” over the next couple of quarters (or beyond) for at least a couple of reasons.

First, inside the U.S. the states that have had the least amount of lockdowns, and therefore the least amount of consumer “demand destruction,” have been middle America, including the states from Texas to North Dakota, the South, and the Rocky Mountains. Just look at the map in this article to see what happened to vehicle sales in March: Big pickup sales rise 3% despite overall plunge in sales.

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The areas with the worst demand trends are California and the Northeast (mostly the Boston-New York-Washington DC corridor). Guess where Tesla’s best sales areas are in the U.S.? Yes, those – with California dominating Tesla’s U.S. column since inception.

Second, the functional aspect. With home deliveries growing at the expense of people driving to the store, panel vans and pickup trucks alike are in relative demand. These are the tools that get that package to your house. If anything, it’s not inconceivable that some of these categories such as panel vans in particular could even grow in absolute terms during this shift in societal structure. We shall see when Q2 is reported in early July.

Relative winners: Ford, General Motors and FCA

It ought to be clear from the discussion above that the main winners from this near-term industry shift away from cars (including crossovers and SUVs) to pickup trucks and SUVs, are Ford (F), General Motors (GM) and FCA (FCAU). Ford is the undisputed leader in panel vans, with GM and FCA having a lesser presence:

US van sales

2020 Q1

2019 Q1

change

2020 share

2019 share

Ford E-Series

10098

10791

-6%

10%

10%

Ford Transit

36836

31842

16%

37%

29%

Ford Transit Connect

7565

8940

-15%

8%

8%

Chevrolet Express

13309

17215

-23%

13%

16%

GMC Savana

4182

6566

-36%

4%

6%

Ram ProMaster

9585

13319

-28%

10%

12%

Ram ProMaster City

2096

3668

-43%

2%

3%

Nissan NV

3728

4507

-17%

4%

4%

Nissan NV 200

4740

4655

2%

5%

4%

Mercedes vans

7520

7476

1%

8%

7%

TOTAL

99659

108979

-9%

100%

100%

As you can see in the table above, Ford was the Q1 van winner in the U.S. market thanks America’s best-selling van, the Ford Transit, being up 16% over last year. Folks, this is your package delivery at work. And you were getting more packages delivered in March 2020 than you were in March 2019, weren’t you? That isn’t changing in Q2 and probably not in Q3 either.

While the entire U.S. van segment was down 9% in March, that’s still a respectable performance in the face of the shutdowns and lockdowns. That brings us to pickup trucks, as they have an even greater concentration of sales in Texas and rural America, compared to panel vans:

US by parent co

2020 Q1

2019 Q1

change y/y

2020 share

2019 share

GM

222620

195031

14%

33%

30%

Ford

207542

224032

-7%

31%

34%

FCA

144064

120149

20%

21%

18%

Toyota

75294

83283

-10%

11%

13%

Nissan

16012

29904

-46%

2%

5%

Honda

8125

6952

17%

1%

1%

TOTAL

673657

659351

2%

100%

100%

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As you can see in the table above, the U.S. pickup truck segment was up 2% in Q1. While Honda (NYSE:HMC) was a winner in percentage terms, the big winners not just in percentage terms but also in absolute terms were General Motors and FCA, which owns the RAM and Jeep brands for its pickup truck nameplates.

Winners vs. losers: Tesla has no pickup trucks or panel vans

It was in November 2017 that Tesla showed a semi truck, which has yet been independently tested by independent outsiders. It’s not yet clear whether it will be in volume production even in 2021.

Two years later, November 2019, Tesla showed its pickup truck, the so-called ‘Cybertruck.” It too has not yet reached production ready-stage and there’s no factory in which to make it. It will likely take years to refine the product and put it into production. With some luck, it might be in volume production by 2022 at best.

Even if you are more optimistic than that, there’s no question that Tesla will be without these kinds of products, even with partial coverage, for the rest of 2020, and most likely well into 2021. Tesla will continue to sell premium cars into a market that’s relatively more focused on pickup trucks and panel vans right now, compared to previous time periods.

So, Tesla is swimming upstream in this market. In contrast, as difficult as life is and will continue to be for a long time for Ford, General Motors and FCA (Jeep/RAM), they at least have something that continues to sell with far lesser sales declines – and in some cases even increases in sales.

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Disclosure: I am/we are short TSLA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: At the time of submitting this article for publication, the author was short TSLA. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.