What do you think of Tesla meeting/beating its Q4'16 delivery guidance? Are they on track?
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It is impossible to say. The most plausible explanation I have for what is currently going on, is that Tesla is planning to deliver 75% of their quarterly numbers in the last few weeks of the year. If that's correct, then whatever happens in October/November of observable facts are irrelevant. For example, EU deliveries in October are up from July by 100. Does that really mean they are somehow ahead? That's maybe one day of deliveries in December. Norwegian deliveries in November are down about 200 compared to August. Does that mean they are somehow behind? Again that's just two days of deliveries in December. We simply don't know anything substantial at this point.
I am tracking to about 21k in deliveries as a possibility. Need November numbers to understand. Need sales and lease deals in December to match Q3 urgency and efficacy. If Q4 is 21k the Q1 would then turn to become sub 20k. AP 2.0 needs full features enabled to get people to really buy based on "full autonomous" driving. And you now need to trust that it will come at some point. AP 1.0 offers more autonomous features now than early phases of 2.0. As usual, it is all about how model 3 comes to fruition.
dennis
Model S Plaid
I am interested to understand how you are "tracking to about 21k deliveries" when others are reporting VIN assignments tracking ahead of Q3 when 25K cars were delivered.
Some things we know:
- Tesla built mostly inventory cars in late Sept/early Oct in advance of the switchover to AP2 hardware in mid-Oct.
- Cars from all of the VIN ranges reserved for inventory have been showing up for sale so there is no evidence of big gaps in VIN assignments.
- NA custom order delivery moved to December very quickly this quarter because Tesla prioritized int't orders and inventory builds. It is now late Dec.
- Customers who want AP1 hardware can buy from inventory. Those who want AP2 hardware with software activation in a couple of months can order custom or buy one of the AP2 cars that are starting to appear in inventory.
- There is no evidence of a demand problem because Tesla removed the following demand levers that were present in Q3: 2 year lease, X60D, P90D which was $20K cheaper than P100DL. They also raised the S60 price by $2K.
- inventory cars delivered in Q4 have free lifetime supercharging; after that they don't.
- There is no evidence of a supply problem because of the continuously high rate of VIN assignments.
My conclusion is Tesla is much more likely to deliver 25K cars than 21K.
Vin assignments at mid qtr where 16500 vehicles.
Implying demand rate above 30,000 for the quarter.
Production assuming 11 weeks at 2200/ week rate equal 24,200
Carry over in transit = 5,500 .
Deliveries = 24200 + Carry over deliveries
Carry over deliveries = 5,500 - 1 week production in transit - new inventory
Carry over = 5,500 - 2,200 - 1000 = 2,300 ( uneducated guess)
Hence deliveries = 24200 + 2300= 26,500 my guess estimate
Implying demand rate above 30,000 for the quarter.
Production assuming 11 weeks at 2200/ week rate equal 24,200
Carry over in transit = 5,500 .
Deliveries = 24200 + Carry over deliveries
Carry over deliveries = 5,500 - 1 week production in transit - new inventory
Carry over = 5,500 - 2,200 - 1000 = 2,300 ( uneducated guess)
Hence deliveries = 24200 + 2300= 26,500 my guess estimate
There are a few sizable Vin # gaps so I am rounding down.
September was "the email" and then "the discounts". So, will those happen again even if "discounting of new cars is not allowed"? Also, don't forget too that 2-year lease programs are not in effect now and Europe deliveries so far in Q4 (Oct) are not looking that good. Either November picks up strongly in Asia and USA or things need to happen in huge numbers in December (much like Q3 relying on financial solutions in the USA - including reaching out to Model 3 reservation holders to buy this year - or at least lease for two years while waiting for Model 3). It's better to cannibalize some Model 3 reservations and get sales now. In addition, recent price increases in Europe due to ForEx (and may continue of USD keeps strength). Lastly, some Model X demand seems to questionable as to how many inventory are being planned and when they will show up. The latest 3000 or so has potential to unveil a lot of inventory if the order rate by customers has waned. Inventory sales from the lots seems to be doing pretty well and a general trend for building inventory ahead of customer orders seems to be continuing.
September was "the email" and then "the discounts". So, will those happen again even if "discounting of new cars is not allowed"? Also, don't forget too that 2-year lease programs are not in effect now and Europe deliveries so far in Q4 (Oct) are not looking that good. Either November picks up strongly in Asia and USA or things need to happen in huge numbers in December (much like Q3 relying on financial solutions in the USA - including reaching out to Model 3 reservation holders to buy this year - or at least lease for two years while waiting for Model 3). It's better to cannibalize some Model 3 reservations and get sales now. In addition, recent price increases in Europe due to ForEx (and may continue of USD keeps strength). Lastly, some Model X demand seems to questionable as to how many inventory are being planned and when they will show up. The latest 3000 or so has potential to unveil a lot of inventory if the order rate by customers has waned. Inventory sales from the lots seems to be doing pretty well and a general trend for building inventory ahead of customer orders seems to be continuing.
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dennis
Model S Plaid
Tesla doesn't need "the discounts" or 2 year leases to meet this quarter's forecast. Otherwise they would put those incentives in place. Instead they have free for life supercharging ending for cars not delivered or ordered this quarter. And they have authorized discounts in place for AP1 cars in inventory, many of which they deliberately built before the AP2 switchover.
Selling directly to customers Tesla has a good handle on their demand. They pull the appropriate levers to match demand to supply as it increases. They are clever, not stupid. And when they have missed their forecasts previously it has been because of production issues, not demand. Slow manufacturing switchover to D/AP1/Nextgen seats in 4Q14 is one example as are the multiple misses due to Model X ramp. When the production line is working according to plan they can generate demand and jump up deliveries significantly as in 4Q15 and 3Q16.
But the oft repeated failed narrative about demand is why this got split out as a separate thread IIRC.
How do you explain H1 2016 then? They were below guidance for two quarters. Production? (Sure, Model X) however, Model S slacked off at the same time. Then they had big discounts in Q3 to spur new MS sales and reached out to Model 3 reservations. There is only so much of that that you can do.
dennis
Model S Plaid
In 1H16 they planned production and sourced parts based on a certain mix of Model S and Model X that would have met or exceeded their guidance. When Model X production fell far short of their goal they missed guidance because they couldn't materialize more Model S parts out of thin air.
The "big discounts" in Q3 were blown way out of proportion as evidenced by Tesla's improvement in GM that quarter. They had the normal mileage and age discounts on inventory cars plus additional reductions for P90 demo cars with the old nose. The one abnormal discount was for 75's that they discounted by about $5K extra but still above the price of the 60 (remember that the 60 and the 75 have the same COGS). The discount on the 75's applied to ones that they had just built for inventory so that is where the exaggerated narrative about discounting came from.
As far as Tesla running out of demand levers, they continue to add to their repertoire. 2 year leasing, end of free Supercharging, full autonomous driving hardware on all cars, folding second row for Model X - all have helped to spur demand. The improvements in GM from manufacturing efficiency gains and better pricing from suppliers give Tesla latitude for other incentives in future quarters. Plus brand awareness and thus demand continues to build for Tesla. Those videos they released showing the car actually driving itself and the object recognition by the cameras are a great demand generator for 1H17. And we can expect to see more of this IMO.
I do not agree there. There certainly were numerous discounts on brand new inventory models in Q3. Elon tried to play it down but even he reacted to it (whether or not disingeniously is up for debate).
It is also hard to explain an entire half a year away by simply a production/parts issue. Had it been merely about parts, as you suggest, Tesla would not have needed those additional demand levers for Q3 (75's sold at 60, 2 year limited-time leasing, breaking the no-discounts model, continuing with referrals, sales push etc., moving away from custom builds to building up invetory...) since Tesla would have by Q3 gotten over the parts issue...
They pushed the demand for a reason and the logical reason is: there was not enough demand without it. It is also likely issues noted in Q1/2016 would definitely have been fixed for Q2/2016 and the facelift... yet the numbers obviously languished through Q2/2016.
It is perfectly plausible to suggest at some point an expensive sedan like Model S will plateua in its mature markets. This is not a volume category, even though Tesla has been able to extend its reach to other categories of buyers by offering the only long-range EV on the market. It seems obvious to me Tesla has hit that point of natural demand in many of its mature markets and are now having to basically market and sell the car to push sales higer. Nothing wrong with that, normal business, but the demand is not fully organic anymore.
If Tesla were production constrained, their wait times would also be much longer. They are perfectly normal, even short, for a custom-order car. With the Germans, a 3-4 month wait is perfectly normal when one custom orders from the factory to a nearby region. A custom-built Tesla near the factory can be had on 1-2 months, in Q3 they even pumped them out in a week or so. These are not signs of production-constrained vehicles.
That said, Model X obviously was production constrained for much of 2016. On that I agree. However I disagree with your notion that replacing Model X sales with Model S sales would, again, have been just about parts. Model S category is not a volume category - Model X could be (though its falcon wings may limit this appeal). You can not substitute one with the other and expect the same results. Saying Model S has a demand problem is not the same thing as saying a Tesla SUV would have a demand problem...
The discount was for $7500 off all the inventory new 75s. The reason was people were asking for 75s to be de-tuned down to a 60 for an $8500 discount since the price of a 60 was quite good and many do not need a full 75 kWh on board for normal driving. Why not ask for that discount? So, the $7500 was to get people in cars and squeek through to that positive GAAP profit. Once the profit was reached, Elon publicly stated "no discounts on new cars!" - good timing and planned well ahead due to the hundreds of inventory 75s made available at the start to mid-September to "do the discounting". In fact, I could see inventory cars being built by the hundreds ahead of paying customer orders in the summer period.
Go to ev-cpo.com now and review Model X and Model S units with 50 miles or less. Discounting is beginning again (yes, AP 1.0 parts) but realistically - a lot of people do not want AP of any kind nor willing to pay $10k for the feature on AP2.0 before all features are even enabled.
Vin # 152807 - 90D - $8900 off, 50 miles is one example. Bunch of S75 are discounted nearly as much as in Q3 now. I guess the excuse is AP 1.0 hardware. However - is Telsa making "only AP cars"? No, they are making a product that should have a balanced price. Discounting AP 1.0 or no AP means that they are still trying to bring in new customers on the "low end" who aren't into gimmicks of "Autopilot". Almost 95% of new cars sold today on the marketplace of ICE and EV do not have any sort of AP. AP2.0 is only for those who feel they "need" that. It's like needing a Keurig or other fancy life-feature that is not a real true human need. Tesla presents AP 2.0 before it is fully vetted and data crunched in order to get "those who must have the latest" churned into new products. It is the basis of product marketing and sales - create customer demand in new and novel ways. From the tracking spreadsheet out there now, almost 80% of recent orders that people are reporting are either 60 or 60D. Wonder how many of those folks really "need" the $10K FSD... For EVs to do well, they must go down-market. Cheaper EVs, widespread charging networks, acceptability by consumers and even regular ICE dealerships getting on board. Some of those things are just not happening yet but should within 3-5 years. The new 200-mile range $20k EV is necessary by the year 2020 to kick start consumer wide acceptance.
The Model S has been sold to buyers who normally buy non-luxury cars too. From Prius owners, BMW 3,5,6,7 series, Volt owners off-lease, Leaf owners who decided to go bigger, Lexus owners, Mercedes, Audi, Jaguar and of course is a real darling with doctors who expense the whole thing as a business lease expense. Their buys were across the gamut but seem to be German-based. Model S has created a slowing of German luxury car sales in the USA - I like that. However, since Techies in Silicon Valley all have had nice stock market gains since 2012 - EVs have sold in CA at 40% of the nations total EV sales. I figure a 10% market correction would definitely play against Tesla's sales of S and X in the longer-term. Our stock gains in the USA have been very good and folks are definitely ready to celebrate with purchases of cars, new homes and other fun. Yes, I am talking about those who actually have holdings. Those who do not have not experience such personal gains. Layoffs and other factors "down market" certainly don't have people looking for EVs yet. They are using the low-gas prices to keep on surviving.
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I believe we have reached the natural demand plateau for Model S at the curent price levels -- 80K to 100K per year. (In the near term the demand will probably be depressed outside the US by the exchange rate.) Model X has had a rocky start but should be approaching its natural demand plateau within the next couple of quarters too, and it'll probably be about the same number. If the price levels are cut, obviously demand will rise. I suspect we'll actually see Tesla cut car prices across the board at some point soon, but they're currently aiming for that 30% gross margin so that Musk can collect his incentive stock options (I think he won't get that tranche).
I've been thinking the introduction of the Model 3 would preclude that, since it will be an effective "price cut" across the product line. Margins would likely be better on a fully optioned 3 than a discounted bare bones S.
Whilst I overall agree, I think some things to consider:
1) Tesla has done very limited marketing and selling historically, and I guess no or nearly no paid advertising. There is certainly more demand to be eked out by effort.
2) Tesla is not yet a fully global player, more demand can be generated by offering the cars in new markets. This will possibly keep the global plateau still a thing of the future for both models. That said, ending of regional incentives could offset this dramatically (compare Norway to present-day Denmark)...
3) SUVs are more of a volume-market than high-end sedans are. In theory, Model X probably has larger potential market than Model S. However, this is again offset by the infamous lack of U in the SUV that is Model X. Falcon wings will always remain polarizing and lack of utility of the folding seats is not fully fixed until it is offered for the seven-seater as well. This may cause the Model X to plateau sooner than it otherwise would (compare Porsche Cayenne to Porsche Panamera sales for example).
Finally, expect Model S demand to drop dramatically once Model 3 ships. I would say these two compete with each other much more than Audi A8 or Audi A7 competes with Audi A4...
dennis
Model S Plaid
Your whole take is that the discounting is because there is not enough demand without it and that is a bad thing. Please name me a car company whose products sell so well that they never use discounts or sales events to grow even 10% per year. Right, there are none. Now name me a company in any industry growing revenues 50%+ per year who doesn't using pricing and discounts to increase sales. Right, none of those either. Tesla is using discounts on inventory cars and special financial incentives like 2 year leasing to grow demand beyond what it would be without those sales tools. Thus they are able to bring more buyers into the market. And that is not a bad thing because even with those incentives they were able to increase GM on the overall product mix.
A major reason that Tesla needs to grow volume is that they are making a lot of forward investment, not just in Capex but in Opex as well. As we saw in Q3 the net loss was dramatically reduced, and turned into a profit when you include the ZEV credits. And they were able to generate cash from operations.
If your argument is that building inventory cars and offering discounts somehow makes Tesla "impure", you are entitled to that opinion. But you can't take away from Tesla the pricing and discount tools that every other business uses to generate demand and then claim that makes Tesla demand constrained. Demand constrained is when you have exhausted all demand levers and you still can't grow sales to match production or your gross margin declines because of discounts. Tesla is not demand constrained.
I'm not bonaire, but overall I would personally like to - and actually assume bonaire does too - separate two things:
1) Whether or not Tesla is production or demand constrained
2) Whether or not this is a good or a bad thing or a neutral thing
I actually think the argument by far more has been about the first point. It has been established in the Tesla lore so to speak that they are a production constrained company that sells cars without any marketing, discounts or sales push.
I would argue a lot of people would say that - while once true - this no longer is true. Tesla is now a more normal company in the sense that is has to market, discount, push sales to keep up with their demand and demand goals.
That doesn't mean much regarding being a good or a bad thing necessarily. It just means the old fact is no longer true.
Krugerrand
Meow
Adding that getting those discounted cars into people's hands means more sales for Tesla via free advertising. It also means more EVs on the road. Win-win.
+infinity.
dennis
Model S Plaid
What I said was that they planned Model X and Model S production at a certain level and when they couldn't achieve the Model X ramp it was too late to increase Model S production because of logistics. Also remember that the X and S share the final assembly line and a slowdown in Model X affects production of both. Their priority was to get the X into volume production and they took a hit on total production because of the X issues.
Comparing wait times for special order German cars, which are the exception, vs. custom build Tesla's, which is the norm, is an apples to oranges comparison. BMW/Mercedes/Audi/etc. build most of their cars for inventory so custom orders take longer. You can't measure demand by wait time, as has been proven in many prior quarters with Tesla. That is because wait time is as affected by production rate as well as the demand rate. Tesla scales production as quickly as makes financial and logistical sense (they can't shut down production for a month, for example). Then they scale demand with new features, financial incentives, inventory cars, etc. to match that production.
It is actually remarkable that a 4 year old basic design is still growing sales QoQ. Show me a German luxury car with that curve. Sales of a new model typically peak 18 months after introduction. Tesla has no demand problem.
dennis
Model S Plaid
To believe that Musk is managing Tesla so that he can gain access to one tranche of stock options when he is already worth more that $10B is ridiculous.
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