Tesla Analyst Says Plunging Registrations In Key California Market Pushing Street Delivery Estimates Down

Tesla Inc's TSLA sales momentum faltered during the COVID-19 pandemic, which forced the temporary closure of its Fremont, California factory.

What Happened: Registrations for Tesla cars in California plunged 37% year-over-year in the April-May period, the Wall Street Journal reported Wednesday, citing Dominion Enterprises' Cross-Sell report.

After declining 16% in April to 6,260 new vehicles, registrations plunged 70% to 1,447 in May, the report said.

This compares to the 52% decline in industrywide registrations for each month.

The weakness is not specific to California, with the report stating that across 24 states tracked by Dominion, Tesla car registrations fell 33% to 14,151 in the first two months of the quarter compared to the 45% drop for the broader industry, the Journal said.

The numbers account for about 65% of the automaker's markets in the U.S.

The COVID-19 impact and dark macro backdrop are hurting Tesla sales in its "core sweet spot" of California over the past few months and have been instrumental in the Street lowering its deliveries forecast for 2020 from 550,000 pre-coronavirus to roughly 400,000, Wedbush analyst Daniel Ives said in a Wednesday note. 

Why It Matters: California is Tesla's key market in the U.S., and going by the weakness relayed in other markets, the company could be in for a sales shortfall in the second quarter, the Wedbush analyst said. 

"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," he said. 

Tesla's sales rebounded nicely in China in May from weak performance in the previous month. China is the "happening market" for Tesla given the market opportunity there, Ives said. Tesla sells domestically made Model S cars in China.

The key to Tesla's stock remains the staggering China growth rebound, which is important for the company to hit the goal of 1 million delivery vehicles annually in a few years, the analyst said.

This, along with potentially "game changing" battery innovations, is driving shares higher heading into the company's likely Battery Day event in the next few weeks, he said. 

Wedbush sees a rebound occurring over the coming months, with the lockdown easing and the "Fremont Stand-Off" in the rearview mirror.

Wedbush maintained a Neutral rating on Tesla with a $1,000 price target. 

TSLA Price Action: At last check, Tesla shares were trading 2.07% higher at $1,002.43. 

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Photo courtesy of Tesla.