Tesla Registration Declines in Calif. Point to a Bumpy Second Quarter

China sales may help offset the drop in California registrations, according to one analyst.
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New Tesla registrations plummeted in California last month, signaling a drop in demand for Tesla's largest domestic market. 

Registrations for Tesla fell 16% year-over-year in April to 6,260 new vehicles, according to research firm Dominion Enterprises. That was followed by a steeper drop of 70% in May, with just 1,447 new vehicle registrations in California. 

Shares of Tesla  (TSLA) - Get Report rose 1% on Wednesday to $992.38. 

The slide in registrations isn't surprising given the weeks-long shutdown at Tesla's main Fremont, Calif. factory, according to Rob Maurer of Tesla Daily

"Tesla operates with the leanest inventory of any automaker with just 20 days of inventory worldwide at the end of March, compared to 100 days for Ford and 81 days for GM, for example," Maurer said. "Because of lean inventory, registrations correlate more with production than demand so with production halted, it is not surprising to see registrations decline."

Tesla's Fremont factory also supplies cars to Europe for the time being, Maurer noted, so Tesla likely prioritized those deliveries first to maximize its second quarter delivery numbers. Tesla did not provide second quarter delivery guidance due to uncertainty, and said it will "revisit" its full-year delivery forecast of 500,000 vehicles in its upcoming Q2 update. 

"It would make sense for Tesla to ship May's production to Europe to ensure those vehicles can be delivered before the end of Q2 rather than be sitting on a boat," Maurer added. "As quarter-end approaches, Tesla will then allocate production to North America where the lead time from production to delivery can be more compressed."

The decline in registrations sheds some light on the impact of COVID-19 on Tesla's full-year delivery outlook. Between April and May combined, registrations were down 37% compared to the year prior. 

"Domestically speaking, California remains a linchpin to Model 3 success for Tesla and now all eyes shift to the trajectory in the month of June and especially into the core summer months heading into Fall in hopes of a rebound as Fremont enters 2H," wrote Wedbush analyst Dan Ives in a note on Wednesday. 

The Street's current consensus view is that Tesla will deliver about 400,000 cars this year, down from a prior estimate of about 550,000, higher than Tesla's own projections, prior to the pandemic. 

Stronger-than-expected number from China could help offset the "doom and gloom" scenario in California, which makes up the bulk of Tesla's domestic sales. Tesla slashed Model 3 prices in China several weeks ago, and also cut prices in North America across its lineup late last month. 

"Strong Model 3 demand out of China remains a ray of shining light for Tesla in a dark global macro and appears to be on a run rate to hit 100k unit deliveries in the first year out of the gates," Ives added. 

Tesla shares have risen 130% year to date