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Until they are forced to cut back production because they couldn't sell the cars, they are not demand constrained. That doesn't mean that they don't need to tweak demand to match their production rate, whether by having more recommendation competitions, opening new markets, or... gulp... advertising.
I think it has more to do with margins than demand. They were building 75's and selling them at 60 pricing. Makes sense to stop that. If they really did have a demand problem they would keep selling the 60. You don't increase the price of your product if you have a demand problem.
That makes no sense. If margins are hurting, why give a month's warning?
In this case they give a heads-up, which suggests they have some reason to do so. If they just wanted to improve margins, they would simply remove the 60 today like they did on the Model X once the Q3/2016 discount balooza was done (which, I believe was done to improve margins after the Q3 effect was eked out).
One might argue it is to give people a chance to still hop on board, but logically, April 16th + 14 day confirmation window (internationally) ending on exactly April 30th suggests they are generating demand for Q2, demand that they are still able to deliver (to most places) within the last two months of Q2 - which is what they need to get the cars to e.g. Europe.
It is Tesla playing its usual short-term demand level games. For whatever reason, they are confident from Q3 onwards they have other demand levers, such as Model 3 that takes the lower-end price spot...
They are generating demand for the time before Model 3 ships. Once Model 3 ships, that will take the place of the software limited 60 model, which was always a stop-gap. It is IMO obvious. They do not need demand levers (or so they hope) for Q3, so they make a demand lever out of the 60 that ends pretty much when Q2 deliverable cars end...
Basically, for Tesla's reasons, delivering 60s in Q3 is wasted margin. But they still need to make it through Q2 with good delivery numbers. So they need the 60 still for that final hurraah.
Any talk of simplifying the choices and most everyone choosing the 75 is, basically, IMO, bollocks.
Just my speculation, of course.
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dc_h
Active Member
I think this is a demand lever in the short term and the start of focusing more on margins for the Model S going forward, and to encourage low end Model S buyers to order a high end model 3. If they can sell 100,000 S&X a year without major investments in the production line, just continue the tweaking that has become standard practice, they will generate 2-3 billion in cash flow from S&X production. That covers costs of the Model 3 rollout, assuming they hit the 5000 a week number in Q1 of 2018 and completion of GF1 in 2018. By the end of the year there will probably only be a 75 and 100 battery offering for the S&X, and two options for the Model 3, with 50 and 75 being the most likely to me, but maybe 60 will be the base for Model 3 and 75 or 80 the performance\distance model.
This would leave a clear product differentiation between the S & 3, focusing on Model 3 sales with 25-30% gross margins and also encouraging some who might have bought a lower end S, to bundle up on the Model 3.
I think demand\sales for S&X is likely to be a little under 100,000 and sales for the 3 to be whatever they can make, which I think will be between 40,000 and 50,000. The beta\early release gamble is likely to work with some issues. The CAD controls and simplified design they are adhering to seems to be very bullish for production this year. If they hit 40,000 by end of year, that in turn is bullish on building more the 300,000 Model 3 for 2018.
If they hit those numbers and get TE up to 5 billion in 2018, they would be at 30 billion in revenue and possibly able to fund GF2 internally. Any positive cash flow from solar is a bonus.
I'm interested in the consensus thought on Model 3 cash flow positive run rate? Will it break even at 2000 cars a week, 5000 a week or more? I'm assuming about 5000 a week is break even or slightly cash flow positive.
This would leave a clear product differentiation between the S & 3, focusing on Model 3 sales with 25-30% gross margins and also encouraging some who might have bought a lower end S, to bundle up on the Model 3.
I think demand\sales for S&X is likely to be a little under 100,000 and sales for the 3 to be whatever they can make, which I think will be between 40,000 and 50,000. The beta\early release gamble is likely to work with some issues. The CAD controls and simplified design they are adhering to seems to be very bullish for production this year. If they hit 40,000 by end of year, that in turn is bullish on building more the 300,000 Model 3 for 2018.
If they hit those numbers and get TE up to 5 billion in 2018, they would be at 30 billion in revenue and possibly able to fund GF2 internally. Any positive cash flow from solar is a bonus.
I'm interested in the consensus thought on Model 3 cash flow positive run rate? Will it break even at 2000 cars a week, 5000 a week or more? I'm assuming about 5000 a week is break even or slightly cash flow positive.
Zhelko Dimic
Careful bull
Or, they are planning a future when S+X will sell less with much higher margins. Maybe 60-80K a year tops, but ASP will be 20K+ compared to today's ASP.
Third quarter could be 1. intentional sacrifice in a gambit that is M3 rollout, or 2. it could be that there is a refresh of MS+MX in the cards that will position them half of step above of what they're now, and fill Q3/Q4 order books. Maybe a mix of both.
I can't imagine Tesla can sell more than 100K MS+MX run rate once 3 is available in good quantities. At least as long as $US is this strong, this alone has increased prices in EU and Canada 10-20%, and even for luxury car, that's noticeable.
Possible.
All I see is for Q2, they are still up to their old games of pulling short-term demand levers.
For Q3, I guess all bets are off. Model 3 is a game-change for the company.
If they are not publically bullish on M3 production they are admitting to having a lot of orders that they can't fulfill.
No one knows, including Tesla, how the M3 launch will go.
It also means Tesla may need more Model S/X demand levers still for Q3 and Q4, if Model 3 can not fulfill its intended role. It is quite interesting to see how big or small role the "legacy" models will play at that point. The bills still need to be paid with something...
I am not sure about your point?
I was talking about Q3/2017 and Q4/2017 demand levers, if Model 3 alone is not a sufficient one (e.g. due to ramp-up being slow or such things). I can not see how AP2 might be a demand lever for Model S/X then, though I guess software advances could help.
dc_h
Active Member
They are a car/tech company, built on innovation and using each change as a demand lever. Next up is heads up, which has had no news from Tesla. Not sure if you can roll that out on the 3 and not S&X. Hopefully interior updates are coming soon too.
I suppose getting rid of the 90 later this year will be a demand lever too.
I suppose getting rid of the 90 later this year will be a demand lever too.
I believe it was meant to be 'tongue in cheek' (sarcasm) that was not directed at anyone in particular.
Margins aren't hurting, but if they have enough demand to sell every 60 as a 75 then why not? The monthly warning is to not piss off any customers that were currently shopping or considering a 60. Just a customer friendly way to do it.
dennis
Model S Plaid
I can't imagine Tesla eventually (steady state production) selling less cars globally than Audi's Q7, A7/S7/RS7 and A8/S8/RS8 which in 2016 were 102,200 for Q7, and at least around 30k each (extrapolated) for A7/S7/RS7 and A8/S8/RS8. So my guess that sales of MS/MX will plateau at 150k+ of annual sales (perhaps 2018 exit rate)
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Everyone is assuming a HUD is going to happen, including myself, but it's not guaranteed. Other vehicles have sold with only center displays.
larmor
Active Member
I personally don't think it will be HUD. They are working on FSD and EAP which right now is limited, and taking input from only 1 camera. The aggregation of data from cameras that are not 'active' in so called shadow mode, and feeding that data to their server to provide a database for the self driving engine. It would seem to me, that this task(s) are far more complicated but yet have high reward, making pulling resources into a HUD system a waste of time.
Better than HUD and more immediate use would be a faster wireless connection-by improved 4G, what about 5G? or tesla launching their own satellite network provider- they do have access to lower cost launches. This would go a long way to mitigating self driving vehicle analysis.
One of the key metrics for "peak" Model S/X sales volume is the entry level price for the base S/X models. At some point S/X will benefit from GF battery production and the entry level price can be dropped while still maintaining ~30% margins, if Tesla decides to do that. We will probably see only modest S/X growth this year because engineering/production is focused on Model 3, but I continue to believe S/X sales will be at least 200,000 by 2020. Other sedans/SUVs at comparable price points will pale in comparison.
Sure.Simplifying the ordering process.
That's why you have to take delivery in Q2
Model S 60-must take delivery by June 30 as confirmed by Tesla Advisor that I spoke with earlier. • r/teslamotors
That's why you have to take delivery in Q2
Model S 60-must take delivery by June 30 as confirmed by Tesla Advisor that I spoke with earlier. • r/teslamotors
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