Articles/megaposts by DaveT

[jhm]

Perhaps the following for Tesla as a company (not talking about share price but rather company growth):
1 - 2006-2012
2a - 2012-2015
2b - 2016-2019
2c - 2020-2023
3 - 2024 and later

One way I would delineate this is to recognize that not only are we talking about growth of a business but also disruption of an industry. So I would suggest thinking of 2a as pre-disruption, 2b as disruption, and 2c as post-disruption.

So in pre-disruption, the current phase, Tesla gains footing while the rest of the industry follows business as usual. Growth is exponential, uncontested, but ignorably small in scale. Gross margin improves year over year.

In disruption, Tesla has gained enough scale to threaten the industry and take profitable market share. This is now a crisis for the industry. Tesla continues to grow exponentially as a competitors fight for survival. Gross margin stops improving as competition begins to exert price competion.

In post disruption, Tesla and survivors consolidate as other automakers go out of business. Tesla grows by acquisition. Growth is linear, but strong. Gross margin on cars begins to compress. Tesla must also expand into other non-automotive markets to seek growth and higher margins.

I'm not clear how this will play out in time. This is more of a qualitative interpretation. The good news is that the longer it takes to disrupt the industry, the longer Tesla can grow exponentially at an annual rate greater than 40%. Extending the first two phases and making the most of them will maximize Tesla's terminal market share. My sense is that disruption will begin around 2023 and conclude around 2029, one six year design cycle, adapt or die. So that gives Tesla a lot of room to grow.

 

[DaveT]

i like the the chart but think the timing is more likely to be like this:

1 2006-2012
2a 2012-2016 (model x and s ramps)
2c 2017-2021 (introducing model 3 and other models in this price range)
2d 2022-2027 (introducing gen 4, and as increased car production capacity begins to get met then also extra capacity will get built for full blown energy storage battery production, etc.)
3 2028 and later
2d could go on longer if they get into electric planes and electric fully autonomous trucks

I can see your timeline work probably better than mine. I was going to note in my original timeline that while 2c might mark the end of hyper-growth, still in stage 3 Tesla would likely be growing at a decent growth rate (much faster than the industry). But when I think about it more and also Gen4, it would seem like Gen3 rollout would mark stage 2b while Gen4 rollout would mark stage 2c. So, if Gen4 hits the market in 2021-2022, then stage 2c could last until 2026-2027.

The market is massive. I've been pondering the implications of Elon saying all forms of transport will go fully electric with the exception of rockets. When you really think about it, he's saying there's going to be massive disruption in all forms of transport. Everything is up for grabs - passenger cars, trucks, SUVs, commercial trucks, vans, RVs, motorcycles, boats, small planes, large planes, etc. Since Tesla is the leader of the electric powertrain, it can basically go into any market it chooses to (note: I think SpaceX might/should go into electric planes - supersonic, vertical landing/takeoff). It will be very selective and choose the markets that are the largest, highest impact, and will deliver the best margins. Then, you have modes of transport (in the very long-term) that haven't been developed yet, like flying passenger vehicles (I've got a lot of thoughts on this but I'll probably share this later).

 

[austinEV]

This is the main reason I didn't agree with people selling their long-term stock positions for LEAPs several months ago when the stock was $220-250 range. I felt like at that time the stock was at a super high trading zone. Enthusiasm is the highest during the super high trading range and the stock looks so sexy (believe me I know), and I understand the appeal of buying or even trying to keep the same number of shares but with less cash via LEAPs. But with LEAPs you're taking on a much more risk asset (although with less cash than stock), which at the right trading range (ie., near super low) can have a great risk/reward profile. But a super-high trading range, the chances are you'll get burned.

And people need to keep sharp when the stock is beaten down. When the stock fell to 180 in May it was one big pity party in here and people get disinterested. There were a few "you know guys, this is the buying opportunity we all wish for" posts, but it is easy to forget and get into wait-and-see mode, or worse capitulate and sell.

 

[DaveT]

And people need to keep sharp when the stock is beaten down. When the stock fell to 180 in May it was one big pity party in here and people get disinterested. There were a few "you know guys, this is the buying opportunity we all wish for" posts, but it is easy to forget and get into wait-and-see mode, or worse capitulate and sell.

Agree. On another note, I've been thinking that the we're in an interesting time of hyper production ramp.
July 2014 - 800 cars/week
November 2015 (est) - 2000 cars/week
This is a production increase of 150% in 15 months.

Compared to the previous 15 month period that showed 100% production growth:
April 2013 - 400 cars/week
July 2014 - 800 cars/week

As long as there are no major hiccups/risks factors realized, then I think it's possible that Tesla could be trading in a mid-high and/or super-high range for the next 6-12 months. There might not be fantastic buying opportunities in a low-mid range for the next 6-12 months since there's so much momentum from production ramp which means delivery/revenue ramp. But anything can happen, of course. And there could be a market downturn during that time as well that hits momentum stocks.

 

[geturchiru]

Agree. On another note, I've been thinking that the we're in an interesting time of hyper production ramp.
July 2014 - 800 cars/week
November 2015 (est) - 2000 cars/week
This is a production increase of 150% in 15 months.

Compared to the previous 15 month period that showed 100% production growth:
April 2013 - 400 cars/week
July 2014 - 800 cars/week

As long as there are no major hiccups/risks factors realized, then I think it's possible that Tesla could be trading in a mid-high and/or super-high range for the next 6-12 months. There might not be fantastic buying opportunities in a low-mid range for the next 6-12 months since there's so much momentum from production ramp which means delivery/revenue ramp. But anything can happen, of course. And there could be a market downturn during that time as well that hits momentum stocks.

Thanks DaveT for the articles and insights. I understand the demand is high at 800/week but can we expect the same level of demand at 2000/week too because its not an affordable car(s) for lot of people. I know Elon is saying that demand is there but how much we can rely on his words and is there any other reliable source.

 

[DaveT]

Thanks DaveT for the articles and insights. I understand the demand is high at 800/week but can we expect the same level of demand at 2000/week too because its not an affordable car(s) for lot of people. I know Elon is saying that demand is there but how much we can rely on his words and is there any other reliable source.

It appears that with the Model S that demand is higher than 800 cars/week as the waiting time is currently 2-4 months globally. Further, Tesla has held back new store openings in the U.S. to hold back demand and avoid increasing the wait time even further.

We don't have clear visibility in to China/Asia sales, but it appears bullish according to what Tesla has said and confirmed from people in China as well.

I personally think that demand for the Model S is higher than 1000 cars/week currently (50k run rate).

And when you add the Model X, I think you get at least another 1000 cars/week demand (probably more).

So put those two together and you have demand of at least 100k cars a year (2000 cars/week).

 

[Larry]

Once the MX is online and selling how do you think that impacts MS sales? And how will that reflect on Tesla if S sales are decreased due to consumers purchasing the X instead of the S? Or is the demand there to continue growth of S sales as well as X?

 

[chickensevil]

Once the MX is online and selling how do you think that impacts MS sales? And how will that reflect on Tesla if S sales are decreased due to consumers purchasing the X instead of the S? Or is the demand there to continue growth of S sales as well as X?

I don't think anyone expects it to impact the S sales... Not in a significant way. The people who would buy an SUV/CUV are not generally wanting a 4DR Sedan to fill that role. Tesla has a fraction of a percent of the market share. It is far more likely to cannibalize anything other than another Tesla sale... and any that would pull away from the S, you have just as many jumping away from an ICE into the S to make up for it.

 

[adiggs]

I don't think anyone expects it to impact the S sales... Not in a significant way. The people who would buy an SUV/CUV are not generally wanting a 4DR Sedan to fill that role. Tesla has a fraction of a percent of the market share. It is far more likely to cannibalize anything other than another Tesla sale... and any that would pull away from the S, you have just as many jumping away from an ICE into the S to make up for it.

I'm expecting approximately the same as what 'chickensevil is expecting. I also think the better way to think of it is the Model S and X are interchangeable - how big is the addressable market when people can choose either? Especially once Model S has AWD (the critical feature that has me waiting for Model X, though I'd still get X over S if both existed and had AWD).

After about a year of production, I expect Model X sales to catch up with Model S, and eventually pass beyond Model S. As I see it, at least in the US where we do like big vehicles, the Model X is everything people want in an SUV (bigger is better) without the corresponding pain at the pump. I expect Model X to be ~80 mpge (vs 89 mpge for Model S), and that will make it one of the most fuel efficient vehicles on the road. And that's going to drive ridiculous demand, and another wave of people who wouldn't otherwise purchase a $50k+ car, buying a $100k+ car because it's so much better than anything else available.

 

[Zextraterrestrial]

Thanks DaveT for the articles and insights. I understand the demand is high at 800/week but can we expect the same level of demand at 2000/week too because its not an affordable car(s) for lot of people. I know Elon is saying that demand is there but how much we can rely on his words and is there any other reliable source.

demand is there. people still don't know about Tesla!

just yesterday I gave a Lawyer from San Francisco a ride.
I am sure she has seen Model S' ?
didn't know about the car at all or where it was made, asked if it was mostly made in the US? really liked it
I see this daily in northern CA. really kind of shocking (to me anyway, but I grew up in the Bay Area)

 

[ecarfan]

While I think the S wait time may decrease slightly once the X has been in production for awhile, and the new line ramps up to full capacity, I do not expect S order rates to decline since Tesla will continue to open new showrooms not only in the US but also overseas.

 

[chickensevil]

demand is there. people still don't know about Tesla!

just yesterday I gave a Lawyer from San Francisco a ride.
I am sure she has seen Model S' ?
didn't know about the car at all or where it was made, asked if it was mostly made in the US? really liked it
I see this daily in northern CA. really kind of shocking (to me anyway, but I grew up in the Bay Area)

Yeah, and SF is home country for Tesla if there ever was, since Fremont is down the street. So if you haven't tapped out CA yet as far as brand awareness imagine the rest of the country!

I have said it before, but it is like an invisible wall between DC and 30 miles south at Woodbridge and below in VA... where you go from many people knowing what the car is (vaguely, but not really fully knowledged), to people who just don't have a clue at all. And I really get different conversation starters in the two areas. So just 30 miles away from a store and you immediately have people who are totally clueless... Demand will not be an issue for a long time... When they start working on brand awareness the sales will come in

 

[DaveT]

Once the MX is online and selling how do you think that impacts MS sales? And how will that reflect on Tesla if S sales are decreased due to consumers purchasing the X instead of the S? Or is the demand there to continue growth of S sales as well as X?

Hi Larry, I think Model S sales will do fine even after the Model X gets online for the following reasons:
1. Compared to other large premium sedans on the market, the Model S is a compelling car and I think will continue to take market share.
2. Awareness for Tesla and the Model S is growing.
3. The Model S continues to get better in many small and incremental ways.
4. Tesla has held back opening of new U.S. stores so to not stir demand. At some point, they will start building new stores in the U.S. again.
5. The used Model S market remains incredibly strong, which I think shows there's a lot of unmet demand.
6. Tesla and the Model S is just getting started in China.
7. It's possible Tesla could release an AWD Model S that could appeal to winter areas and also Germany if the AWD Model S can reach higher top speeds due to two motors.
8. The Model S and X overlap slightly since the Model S can seat up to 7 and has a lot of cargo space. But I think there are people who clearly prefer either a sedan or a SUV. And overall, I see both the premium large sedan and SUV markets wide open to Tesla.
9. Tesla's aggressive supercharger rollout increases the appeal of the Model S (and X) and can possibly increase demand.

 

[jhm]

While I think the S wait time may decrease slightly once the X has been in production for awhile, and the new line ramps up to full capacity, I do not expect S order rates to decline since Tesla will continue to open new showrooms not only in the US but also overseas.

I don't think it will matter what ratio of S to X there may be. The production lines will be able to switch between the two, and it won't make much difference to revenue or earnings. So I think Tesla should just minimize/equalize the wait time for everyone and sell whatever ratio customers may order. You should not have to wait longer for one model than for the other.

 

[StapleGun]

I believe there is a reasonable portion of Tesla's current Model S demand pool which would buy an X right now if it was available. Therefore I would expect an initial drop in demand for the S when the X finally comes online. This would lead to shorter waiting times for the S, or it may change the distribution between the two models if they intend to keep a similar wait time for both. However the size of the current demand pool is a fraction of the total demand which can be tapped "at will" as Elon said. I believe Tesla will continue to be supply constrained well into 2016.

 

[AlMc]

I believe there is a reasonable portion of Tesla's current Model S demand pool which would buy an X right now if it was available. Therefore I would expect an initial drop in demand for the S when the X finally comes online. This would lead to shorter waiting times for the S, or it may change the distribution between the two models if they intend to keep a similar wait time for both. However the size of the current demand pool is a fraction of the total demand which can be tapped "at will" as Elon said. I believe Tesla will continue to be supply constrained well into 2016.

The beauty of the new line that produces both vehicles is that they can adjust according to demand/wait time of the mix of S and X.

 

[jhm]

The cool thing about offering both the X and the S is that total demand will go up. Currently their are people who want to buy an X because they have come into contact with an S. It will go the other way too. As more Xs get on the road it will raise more awareness for both the X and the S. I believe that demand is doubling every year. Xs on the road will further this. Thus, there is no need to assume that demand for the S will decrease due to the X. I expect just the opposite to happen. Of course, there will be a transitional period where the X backlog and supply constraints will obscure the issue. The likes of Paul Simpletos will try to make the most of transitional distortions, but in the big picture demand will grow.

 

[Robert.Boston]

There's clearly going to be some lost Model S sales to the Model X. My guess on scale the S / X substitution effect depends on how quickly Tesla rolls out an AWD Model S (not the "SuperCar" Model S). The only reason I would personally consider a Model X is because of its AWD system, and I expect that I'm not alone in this thinking.

I agree with @jhm that the effect on Model S sales will probably be net positive. Sure, some customers will buy an X who would have bought an S, but broadening the brand and increasing the number and variety of Tesla vehicles on the road is its own advertising.

 

[astrotoy]

What I haven't seen mentioned is that Tesla still has one big tool for when demand eventually starts to decline (if ever), that is advertising. There is still a great lack of knowledge of the public that Tesla even exists, probably much less among the the 1% who can most easily buy an S or X. However, as TMC members have shown, it is much more than the 1% who have already bought a Model S, and awareness of Tesla among the hoi polloi is not nearly as great as we might believe.

 

[jhm]

From a marketing perspective, having two great models will get more people to come out to a Tesla store and spend more time test driving. The more time shoppers spend in a Tesla, the more they will want one. The more energy they spend comparing the Model X and the Models S, the better educated they'll become. All this adds up to an increased likelihood that their next car will be a Tesla.

The sooner Tesla can get Model X prototypes into the stores, the better. It will generate more interest, awareness and orders, both in the near term and beyond.