Your comments above regarding Model Y margin is very important, and makes me consider if I should adjust my long-term Model Y gross margin assumption up from 20%. Especially given management's surprising Model 3 gross margin guidance, in addition to your input above, it may be wise for me to adjust it up to 25% (still relatively conservative but less so) from the 20% I had previously modeled.
One question for you: by how many quarters do you think the decision to use Model 3 platform to build Model Y will accelerate Model Y's arrival? For your reference, the previous guidance was late 2019 or early 2020, which is what I have modeled. I agree with you that pull-forward of Model Y cash flows would increase the intrinsic value of the company.
There have been a couple of thoughtful comments on this already. Realistically the Model Y production is likely to be in a new factory, perhaps with Tesla Semi and additional Model 3 capacity also. Moving Solar Roof production out of Fremont to Buffalo will give additional breathing space in Fremont, as well as the new buildings being built there, but my own goes is that the Model Y change to Model 3 platform will reduce launch risk, improve margins, reduce capex and speed ramp but probably launch date will remain more or less as predicted.
My logic in launch date is that:
1. the Model 3 rampup will continue to put huge systemic stress for the next year ("remember 'production hell');
2. Tesla Semi is being designed and is to be the next product launch. despite Model 3 base, this is NOT trivial!;
3. Rapid build and deployment in Tesla Energy also includes move from Fremont to Buffalo as well as industrial deployments;
4. The Model Y change to Model 3 platform is de-risking for sure, but still will be a demanding process;
5. The Shareholders Letter and discussion state that Model S and Model X are having continuing growth in demand. Meeting increased demand for those creates new production line complexity since they already are producing more than they had expected to do. That is also not trivial.
Putting those five factors in context suggests that the highest priority now is de-risking, de-risking everything. The optimism expressed by Elon seems to be the surprise that Model 3 is working out better than expected. Now the trick is to avoid returning to 'Hubris Extraordinaire'. In that respect Elon admitted that he was talked out of a new platform. That speaks to serious development of the Tesla management team. I don't want to minimize that point, perhaps the most important single point of the week. Tesla management is now capable of convincing Elon to choose lower-risk paths than he might intuitively favor.
Netting all that, I'll bet on Q3 overall gross margins dropping to ~20%, Q4 at ~22% and Q1-18 at ~25%. Despite GM impact of lower S model mix, and perhaps X too we can expect increased S and X volume to have positive GM impact.
I still am leery of estimating Model 3 rampup timing in 2018, thus cannot realistically estimate Model 3 contribution, even though I'm confident they'll meet the 25% GM on Model 3 during 2018. Given all the comments my personal guess is that supplier uncertainty is the missing input, rather than Tesla factory capability. Frankly, I suspect many of those new first class suppliers actually did not expect Tesla to meet the new aggressive plans, after all Tesla is famous for being late. This time, though, it seems quite different.
