John Lovallo is a research analyst for Merrill Lynch who claims that Tesla is currently sitting on an inventory of 3,000 unsold Model S automobiles. That information seems to fly in the face of recent statements by Tesla which suggest that new Model S sedans are scarcer than monkeys who can type 50 words a minute. The company told Lovallo recently, “Essentially, in the third quarter, we sold every car that was. Including cars in, like, showrooms, and everything we basically had.”

But when Lovallo went through Tesla’s finished goods inventory at the end of the third quarter, he found Tesla actually has about 3,000 vehicles stocked in inventory or in transit. Merrill Lynch has included Lovallo’s findings in a research note distributed to clients. The brokerage house presently rates Tesla in the “underperform” category. On “The Street”, that designation, loosely translated, means “only a complete idiot would buy this stock at the current price.”

According to former industry flack and internet gadfly Bertel Schmitt on his website, The Daily Kanban, there are plenty of other red flags about Tesla’s financial condition that should make investors nervous. He points to Tesla’s recently announced lower least payments and its 3-month happiness guarantee as examples of warning signals. “In the rest of the auto industry, a happiness guarantee means that not everybody is happy, and attractive leases are discounts in drag. If people are really lining up to buy, ask more money, not less,” he writes.

Tesla points to  China as a booming market for its cars, but Schmitt questions that optimism. Despite massive incentives to buy electric vehicles from the Chinese government, electric car sales in China have languished. In Beijing, a lottery was created to parcel out hard to get new registration permits to electric car buyers on a preferential basis. After an initial rush to buy lottery tickets, “Nearly 70 percent of the total had failed to buy electric vehicles by the time their rights expired on Oct 26, even after the deadline was extended by two months,” writes China Daily.

Merrill Lynch tells its customers it is seeing signs that “…indicate that China is proving to be more challenging for Tesla to penetrate than expected. China difficulties, coupled with seemingly tepid European demand for the Model indicate meaningful international headwinds for the company.”

It goes on to claim that what little money Tesla is making comes from selling regulatory credits, not from selling cars. “Tesla has found it challenging to earn money on its vehicles, which could ultimately prove to be the biggest risk for the company and the pure electric vehicle market at large.” We also reported recently on owner dissatisfaction with Tesla’s trade-in policy which may be another sign that the company is finding it hard to make money on its cars originally and is looking to the pre-owned market to generate some additional revenue.

Elon Musk prides himself on being a disruptive influence in several industries, including solar panels, space travel and now internet communications. He certainly is not a man who suffers from low self esteem. He has flung down the gauntlet to the world’s auto makers and caused sleepless nights in many a corporate boardroom around the globe. His supporters often act like religious acolytes who vehemently reject any criticism of the man and his mission to transform the auto industry.

But everybody wants what they can’t have. That’s one of the most time honored truisms of salesmanship. If, as Merrill Lynch claims, Tesla is holding some cars off the market to create an artificial scarcity, that may be just brilliant marketing. Or it may be a sign that cracks are beginning to appear in the foundation of the Tesla supremacy myth.

You decide.

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Tags: electric car sales in China, Merrill Lynch report on Tesla, Model S, Tesla, Tesla happiness guarantee., Tesla lease rates, Tesla Model S, Tesla Motors

About the Author

Steve Hanley I have been a car nut since the days when articles by John R. Bond and Henry N. Manney, III graced the pages of Road Track. I know every nut, bolt and bullet connector on an MGB from 20 years of ownership. I now drive a 94 Miata for fun and the occasional HPDE track day. If it moves on wheels, I am interested in it. Please follow me on Google + and Twitter.

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