The Curious Case of Decreasing/Stagnating Model S Demand and What That Means for Tesla's Long-Term Future
Alright, so here's the gist of the argument.
Model S/X demand has weakened gradually over the past several years.
This is evidenced by Tesla effectively lowering the price (ie., including more range, features, etc. in the price) but sales not increasing.
If Tesla didn't add features/range for the same price, then most likely sales would actually decreased.
Gradual weakening of Model S/X demand wasn't forecasted by many, if any, bulls.
In fact, we may get only 45k Model Ss sold in 2019 if Tesla sells slightly more Model Xs than Ss and if total unit number is 95k units.
If EV demand is growing and the Tesla Model S is a far superior car than its competitors, then you'd imagine demand to be increasing, not decreasing.
This is concerning. But not so much for Model S's sake, but for Model 3 and Model Y.
What's to say that the Model 3 doesn't go through the same decreasing demand (or stagnating demand) as the Model S?
Perhaps when Model Y comes out, it will hit Model 3 demand some.
Perhaps when other EVs come out in next few years, that will hit Model 3 demand some.
ICE cars at $35k are very good. And might be better for most people than a 220 mile Model 3. (Now a $35k Model 3 that had 300 mile range would be different.)
Tesla struggling with achieving decent margins on their $35k is concerning. It's shows poor execution and poor planning. And it also limits their demand. And bulls might say Tesla will fix that. But it might not be that easy.
I'm not saying Model 3 is doomed by any means, but what I am saying is what if long-term demand (meaning in 10 years time) for the Model 3 is 500-600k cars/year... roughly the same as it is now.
And what if demand for Model Y is similar, maybe slightly more at 600-700k cars/year.
Side note, the problem with the Model Y is twofold. First, the Model Y will cost more than the Model 3 because it'll be a slightly bigger car. So maybe $3000 more. But it's likely that the Model Y will have less range than the Model 3. So, let's say 200 miles. That range is not acceptable. So, maybe Tesla will need to offer a higher standard range, but that only increases the price, which decreases total addressable market (aka demand).
So, if Tesla is doing 90-100k Model S/X per year, 500k Model 3, 600k Model Y... and this number isn't growing and is stagnant for the next several years (or decade), then where does the massive revenue growth that Tesla needs come from?
The pickup? That's just one line and it's questionable if Tesla's pickup will sell over 300k cars a year.
Semi? Again, just another line and won't bring in as much revenue as Model 3 and Y.
Energy? Talk to me when it brings in at least $1B/year in profit.
So, what if Tesla gets stuck in the luxury market, and that luxury market isn't growing much and isn't big enough to continue to grow Tesla's revenue at a pace it needs.
Does Tesla need to get into the economy market? But they're not ready and won't be ready for years. The Camry and Accord are just too good at $20-25k. And Toyota can gradually electrify their cars over the next 5-10 years.
Maybe Tesla needs true energy storage breakthrough? But we can't count on that.
Tesla Network ain't coming any time soon.
Perhaps the Tesla bulls have underestimated the competition. Cheap ICE cars are actually very good. They do the job of getting from point A to point B very well and very cheaply. Autonomy also will likely become a commodity with many big tech companies completely willing to give it for free. And the transition to EVs is moving slow, slow enough that companies like Toyota can take their time but still get in the game with the help of Panasonic selling them cheap cells, probably almost as cheap as Tesla gets them.
Does Tesla really want to fight it out with the likes of Toyota for cheap, low margin manufacturing? I hope not as that's not a very sexy business and will command very low P/E multiples.
So, how does Tesla get to a trillion dollar market cap again? Or even a $500B market cap?
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@EinSV I read your reply to my other post, but would like to hear your thoughts on this one as well.
other bulls - please don't be alarmed. I'm still very long TSLA. But I'm sick of hearing shallow reasoning and "faith-based" hope for Tesla's future. Tell me rationally if and how my thoughts above are incorrect.