2017 Investor Roundtable: TSLA Market Action

[Reciprocity]

Not to be contrarian, but I think that if that were the case, Tesla would have instead expanded Model S and X production through the rest of the Fremont factory, and started Model 3 production in a new factory. After all, if they could sell 500,000 Model S/X units a year, why would they NOT scale up? I think that demand for S & X is marginally above supply, which is a good thing, but your statement could hint that they can't produce more than 100,XXX Model S/X a year. (That's not what you said, but you get what I mean, not wanting to put words in your mouth.)

TLDR; If Tesla could sell 500,000 Model S & X a year, would they make them today or next year? Can Tesla (currently) sell 500,000 Model S & X a year? Likely not, so they're not making them as fast as they can "because that's what they've always done." Apologies if it sounds nit-picky, but I would argue that S&X are not only supply constrained but if expansion were large, would then be demand constrained.

Certainly S/X are still supply constrained but the question is how much. I think the S has pretty much maxed out its large market share gains with an incredible 40% and will only slowly eat into the rest of the 60% of the market share that is left over the next 5-10 years. But the Model X should still have a lot of room to grow. Currently it has ~10% market share and I dont think it can get to 40% soon, it certainly should be able to get to 20-25% by EOY 2018. With the current ~60/40 split for S/X that would be roughly 60K Model S and 80K - 90K Model X in 2018. The market for Large Luxury SUVs is much larger then the market for Large Luxury Sedans. I dont think the X has enough broad appeal to dominate the whole market the way the S has, but the market as a whole is much larger. Some folks just want the largest vehicle they can get it and it doesnt fill that demand.

It seems that Tesla has maxed out at 2,500 cars a week, so that would be roughly 125k S/X @50 weeks. So the question is, can they speed up that production more over the next 18 months to hit the 140k-150K mark? I would hope so. I also think we will find out because they are going to go balls to the walls to maximize the mid 2018 - end of 2018 tax incentive phase out. I could see them building as many S/X as possible to fill the pipeline with pre-configured cars that are sitting on lots around the country to capitalize on that demand. I can also see them shipping a lot of S/X out of the country at the end of this year to keep the number of cars delivered in the US under 200k so that the 200,001 car would be delivered Jan 1, 2018. The next 12 months are going to be very interesting.

 

[1kEE]

Is the current Tsla day trade to sell in the premarket and buy back after it goes below 370?

 

[Krugerrand]

Not to be contrarian, but I think that if that were the case, Tesla would have instead expanded Model S and X production through the rest of the Fremont factory, and started Model 3 production in a new factory. After all, if they could sell 500,000 Model S/X units a year, why would they NOT scale up? I think that demand for S & X is marginally above supply, which is a good thing, but your statement could hint that they can't produce more than 100,XXX Model S/X a year. (That's not what you said, but you get what I mean, not wanting to put words in your mouth.)

You think there's demand for 500,000 S and X per year? Really?

 

[DurandalAI]

You think there's demand for 500,000 S and X per year? Really?

I most certainly do not. And that was my point, that Tesla isn't making them as fast as they potentially could scale up, because the demand isn't there.

 

[LoveTSLA]

Is the current Tsla day trade to sell in the premarket and buy back after it goes below 370?

Planning to buy more shares around that...

 

[SBenson]

I didn't like pricing action today. And it's typical that SP drops after new revolutionary product is unveiled, as hype subsides. True gains in earnest start months afterward and go for years.
So I don't know if we've seen everything TSLA had to give us before reveal, but it's a possibility. My general feel is that we have one more last hurrah $70 rally left before "sell the news" correction.
I sold today my 5% trading stake with ~$10 gain. Last time I did that, sold it at $314, before $10 drop and subsequent $80 run, so maybe we see repeat If I discover significant correlations btw. my actions and SP making fun of me, I'll ask for donations

I hear ya on the price action. My bet was that the short covering rally will continue and morph itself into the M3 reveal hype before the event. So, yes, I too was expecting continued price gains. My plan was that I will hold the margin shares up until 2 or 3 days before the final M3 unveil... Unfortunately, the sideways movement put a dent into that bet. If the short covering rally has stalled, then the only remaining bet is hype before unveil. However that is a long wait of about 5 to 6 weeks. I didn't want to sit on margin for that long. Margin is a double edged sword. So I gave up.

I remember your story with X. I too have a similar story. I was leveraged to various degrees throughout the X cycle. It was torturous. I finally gave up at roughly neutral prices in mid 240s. Alas, the stock zoomed into 370s. I don't seem to ever get this right. lol

 

[Reciprocity]

You think there's demand for 500,000 S and X per year? Really?

I most certainly do not. And that was my point, that Tesla isn't making them as fast as they potentially could scale up, because the demand isn't there.

You have to start with the market size and I dont believe that the entire addressable market for S/X, in a Model 3 world, is 500,000 though it might be close because of how popular Large Lux SUVs are. Model S is currently dipping into low end E Class and 5 Series range and I believe that will be filled by upper level optioned Model 3s. So the realistic addressable market in a world where the 3 is more available is probably around 500,000 Cars and SUVs. That would be 100% market share and that is not realistic. If you say that S can get to 50% in a few years, I would agree. If you say that X can get to 50% in 3 years, I would have to argue that they probably cannot get above 30-40% because of the diversity of large SUVs. So 40% of those 400,000 are cars, 50% of that market share would be about 100,000 model S per year, and 60% would be around 120,000. For the SUVs, 30% of the remaining share would be 90,000 Model X or 120,000 at 40%. So for me, I think the max sustained market for the S/X would be around 190k-240k per year or just shy of 50% of the total addressable market. BTW, that nearly 50% would command about 80% of the gross profits or more due to the higher gross margins.

Can the current lines in Fremont be sped up to go from 2500/week to 3800-4800/week over the next 3 years? Can Tesla avoid import taxes in China/India if they manufacture most of the cars there, but import the S/X? Would they want to setup EU and Asian S/X lines or just focus on 3, Y and yet to be announced Truck.

These numbers are US only and oddly, does not include any S/X, though they mention that they track them separately:

Large Luxury Car Sales In America - December 2016 & 2016 Year End - GOOD CAR BAD CAR
Large Luxury SUV Sales In America - December 2016 & 2016 Year End - GOOD CAR BAD CAR

So all the numbers above are estimates based on the US, but the idea is to find the addressable market and then take a percent and estimate growth over time. I honestly as astounded by the 40% number for the model S, but I think a part of that is 5 Series and E-class level buyers who see the value of the electric car so the S actually has a bigger addressable market then the S class or 7 Series so that makes it a bit unfair to compare them.

 

[ValueAnalyst]

Might work out well for Chris though if he decides to return to Apple. You can keep seniority if you get hired back less than a year after quitting.

And with all the inside info he was exposed to at Tesla....

 

[ValueAnalyst]

You have to start with the market size and I dont believe that the entire addressable market for S/X, in a Model 3 world, is 500,000 though it might be close because of how popular Large Lux SUVs are. Model S is currently dipping into low end E Class and 5 Series range and I believe that will be filled by upper level optioned Model 3s. So the realistic addressable market in a world where the 3 is more available is probably around 500,000 Cars and SUVs. That would be 100% market share and that is not realistic. If you say that S can get to 50% in a few years, I would agree. If you say that X can get to 50% in 3 years, I would have to argue that they probably cannot get above 30-40% because of the diversity of large SUVs. So 40% of those 400,000 are cars, 50% of that market share would be about 100,000 model S per year, and 60% would be around 120,000. For the SUVs, 30% of the remaining share would be 90,000 Model X or 120,000 at 40%. So for me, I think the max sustained market for the S/X would be around 190k-240k per year or just shy of 50% of the total addressable market. BTW, that nearly 50% would command about 80% of the gross profits or more due to the higher gross margins.

Can the current lines in Fremont be sped up to go from 2500/week to 3800-4800/week over the next 3 years? Can Tesla avoid import taxes in China/India if they manufacture most of the cars there, but import the S/X? Would they want to setup EU and Asian S/X lines or just focus on 3, Y and yet to be announced Truck.

These numbers are US only and oddly, does not include any S/X, though they mention that they track them separately:

Large Luxury Car Sales In America - December 2016 & 2016 Year End - GOOD CAR BAD CAR
Large Luxury SUV Sales In America - December 2016 & 2016 Year End - GOOD CAR BAD CAR

So all the numbers above are estimates based on the US, but the idea is to find the addressable market and then take a percent and estimate growth over time. I honestly as astounded by the 40% number for the model S, but I think a part of that is 5 Series and E-class level buyers who see the value of the electric car so the S actually has a bigger addressable market then the S class or 7 Series so that makes it a bit unfair to compare them.

Thank you for this post. It'll be interesting to see how Model X does in 2Q17 and 2H17. It seems to me that the initial bad rep has hindered its growth rate somewhat. I'd welcome any other opinion/explanation on this.

 

[Reciprocity]

Thank you for this post. It'll be interesting to see how Model X does in 2Q17 and 2H17. It seems to me that the initial bad rep has hindered its growth rate somewhat. I'd welcome any other opinion/explanation on this.

I had and do expect Model X to eclipse model S deliveries, mostly due to the size of the addressable market being much bigger for Large luxury SUVs. I am hoping the issue was on the supply side and that they have worked out all the supply issues for the quarter that is now ending and the next two. It would be very good to see S stay strong and X exceed model S deliveries in the next few quarters.

 

[ValueAnalyst]

I had and do expect Model X to eclipse model S deliveries, mostly due to the size of the addressable market being much bigger for Large luxury SUVs. I am hoping the issue was on the supply side and that they have worked out all the supply issues for the quarter that is now ending and the next two. It would be very good to see S stay strong and X exceed model S deliveries in the next few quarters.

Yes. I think also the part of the problem is X's price is relatively higher vs how compares to competition. Agreed?

 

[DurandalAI]

Yes. I think also the part of the problem is X's price is relatively higher vs how compares to competition. Agreed?

Hence why I think the Model Y needs to be put onto the market ASAP. CUVs are a huge market, and would present the opportunity for Tesla to tap into a much larger market, even if it does result in some cannibalism from Model X sales. (If they offer higher optioned versions of the Y, it could reduce the impact a bit.) I know that some people either don't like or are scared away by the Falcon Wing Doors and the associated problems. I hate to imagine what maintenance on those will be 10 years from now, but I'm sure some Delorian owners could probably tell us.

 

[ValueAnalyst]

Hence why I think the Model Y needs to be put onto the market ASAP. CUVs are a huge market, and would present the opportunity for Tesla to tap into a much larger market, even if it does result in some cannibalism from Model X sales. (If they offer higher optioned versions of the Y, it could reduce the impact a bit.) I know that some people either don't like or are scared away by the Falcon Wing Doors and the associated problems. I hate to imagine what maintenance on those will be 10 years from now, but I'm sure some Delorian owners could probably tell us.

Agreed. Model Y needs to come to market asap. Maybe this is why they're keeping Model X price high.

I currently have Semi 3Q18 and Y 3Q19 but ramping up about the same rate as model 3 and similar margins.

 

[vgrinshpun]

ChinaDaily.com: Tesla eyes Shanghai for its new auto plant

Tesla's production facilities would be located in Shanghai's Lingang Economic Development Zone, and an agreement could be announced as soon as this week, Bloomberg News reported.

Representatives of Tesla China were not available for comment on Tuesday.

But a source with China (Shanghai) Pilot Free Trade Zone, where Lingang is located, said on condition of anonymity on Tuesday that an announcement is likely to be seen on the Shanghai government website on Thursday.

 

[Reciprocity]

Yes. I think also the part of the problem is X's price is relatively higher vs how compares to competition. Agreed?

I don't think price is the main issue. I think you could show TCO and residual value would make them pretty close. I think it's partially the fwd and how unique and flashy they are. But also the size. It's small compared to some of the bigger vehicles. Sure you can seat 7 but no luggage it gear. One area where there is no comparison is the MX P100D, there just isn't anything like it in that category. Maybe the M version of the X6 is close but it's very expensive as well. G wagon is great for off road and I don't think Tesla really plays there with the X. I know there are some videos, but there is no way I'm taking mine of road. There is just more diversity in that market segment, it's hard door one vehicle to fill those diverse roles where I think the S has an easier time comparing favorably with all the large lux sedans. Another huge advantage of S/X is safety. As Elon says, you really, really have to try to kill yourself in these cars. 300 feet, or whatever, down a ravine and walk away mostly unscathed.

Want to tow a large boat for 500 miles at a pop and have your large family and gear, the X won't cut it.

 

[austinEV]

ChinaDaily.com: Tesla eyes Shanghai for its new auto plant

That is huge. May have to buy some weeklies...

 

[steve3]

ChinaDaily.com: Tesla eyes Shanghai for its new auto plant

Could be the catalyst for a $70 SP surge Zhelko talked about...just sayin'

 

[racer26]

The rumblings certainly seem to be much more credible this time than before.

 

[vgrinshpun]

That is huge. May have to buy some weeklies...

Yea, I would not bet a farm on it, but buying some weekly lottery tickets might be a good play - I am planning to do just that some time today.

Not an advice.

 

[racer26]

I dunno - would announcing another GF right now, this close to the launch of 3 be seen as a good thing, or yet another distraction from the goal?