Demand

[Zhelko Dimic]

finally, on using price drops to spur demand i wonder if that's the most economical way to stimulate demand. tesla has very little marketing or advertising. selling 10k vehicles for 7k less would cost 70 million. that would buy a lot of ads. i wonder if they took the price drop as a measured move because they could and still preserve margin, while setting up the lower end s to be very tempting to the high-end 3 buyer. margins would have several percentage points of room from: eliminating 60s that were built with 75 packs and sold at lower prices, autopilot revenue recognition, eliminating unlimited free supercharging, and manufacturing efficiencies.

Discounts so far have been related to tangible reasons: AP1 inventory cars, selling 2016 in 2017, mileage of demo cars etc. One exception were P100Ds, there were some discounts for 'no-reason' at all, but most of them were used as loaners, Tesla tried putting some miles so that discount is easier to justify to those that bought at full price.

I don't doubt that some of discounting was to create extra demand as production increased - I am an example of someone who wouldn't have bought otherwise. But primarily, Tesla had to discount to handle step change in technology that AP2 introduction was, while making sure AP1 buyers don't sour on it.

Going forward, I expect that Tesla takes harder line on discounts again, and volumes of S/X to soften, until increased visibility of M3 and related foot traffic makes demand pick up again somewhere in the 100K-120K yearly. So I would not be surprised Q2 to be softer, though I have no data either way. I subscribe to @schonelucht's logic.

Having said that, Q2 is the last Q that S/X really matter, and maybe they manage to pull it again with that double take of: "order 60 while you can, oh, if you did, you can upgrade your 60 to 75 for 2K only, and look, 75 dropped in price". Smart stuff that. If they just dropped the price, there would be no urgency, but deadline helped them create sense of urgency for price sensitive customers to pull demand forward, and then Tesla managed these customers' satisfaction by offering cheap 75 upgrade. And then, Tesla dropped down price of 75 to appeal to broader segment of the market, after they picked most cost sensitive ones. Some smart people there... Main reason I'm betting on this company

 

[Zhelko Dimic]

Still this raises the question : if you have several points of wiggle room on margins, why give it to customers? Especially if you truly could sell every car you can build. I am not totally convinced that enticing Model 3 buyers to upgrade to an S is the correct answer. Why now? The high end Model 3 won't come out until 2018. The timing is just completely off. And as you say, if you want to pre-build inventories for when foot traffic to your store quadruples overnight it would make double sense to not 'give away' your cars today. Better to accept a little lower sales at extreme gross margins and use the inventory to make a killing again off the impatient that walk into your store on Model 3 D-day.

Note as well that giving margins to customers is explicitly against the often repeated mission statement of the Model S/X : to generate cash to make the model 3 a reality.

Cost of any produced car is 1. parts/material and 2.your fixed costs that include paying salaries, interests etc. This second factor makes it important to continue selling even if it's not the most optimal time. If you already have to pay salary of the workers you've hired, and your administration, and sales, I'll bet you that parts/material in base Model S are not much more than 25K-40K, so any unit you sell lets you keep the lights on. Show must go on in volumes close to the ones you're optimized for. This dynamic is what killed auto-industry in 2008, mere 10% drop in demand bankrupted everyone but Ford and Tesla.

Also, Tesla needs to control the story, as story influences strength of longs and SP, and SP is important for raising capital so it could be spent on expansion.

 

[dc_h]

I think it will be interesting to see the % of 75's sold in Q2 and if that is a big demand lever. Seems like a pretty big upgrade. As an investor though, what is the impact on the glass roof as standard. Using the open roof to increase automated assembly for the Model 3 seems to be applied now to the Model S. Can they increase features while holding costs and increase margins? Replacing the base 60 with the base 75 with the open roof may be the second biggest story of the quarter.
The new standard could increase production capacity, lower per unit costs and allow for a more feature rich baseline product. If this is the first big change on the road to the alien production processes, we could see Model 3 planning continue to drive down costs for the S&X going forward. If Model 3 can help drive down S&X costs by 20%, we could be seeing 30% margins with more features and higher base battery packs. More interesting is the cost reduction pre-2170 GF battery packs.
Fun to see them continue to push innovation and constantly create new demand by maintaining an evergreen technology platform.

 

[EinSV]

I have difficulty reconciling this supposedly larger backlog with the speed with that orders get produced. For example I count 26 Model S orders that confirmed in March with delivery ASAP. 6 of them went in production the same month, another 15 went in production the first half of April and 1 4/19 and the rest were just not updated.

Tesla cutoff Q1 orders about one month early for Model X (early Feb.). Even if the reason for this is the shutdown in Q1, this extra month of orders booked and available in Q2 still existed at the beginning of the quarter.

So using your numbers, a VIN issuance rate of 7000 X over 9 weeks results in an "extra" order backlog of 7000/9=777.78 x ~ 4 weeks = 3111 extra X orders available to be delivered in Q2.

Spot checking the X delivery threads -- most posters with late February orders report deliveries in Q2.

I don't see how it makes sense to count VINs issued to predict Q2 deliveries but ignore the fact that an extra month of VINs are available to be delivered in Q2.

The same analysis applies to Model S although for only 1-2 weeks instead of about one month, so an extra 1000-2000 orders using your VIN run rate of 1000S/week.

 

[MitchJi]

I think that its possible that Tesla will produce a lot more MS-MX in Q2 than are expected: Elon Musk addresses Tesla employees in leaked email: claims higher comp than Ford/GM, lower incident rate, & new ‘roller coaster’

Feb 24, 2017 - This is why we hired thousands of additional team members to create a third shift , which has reduced the burden on everyone.

 

[ValueAnalyst]

I think that its possible that Tesla will produce a lot more MS-MX in Q2 than are expected: Elon Musk addresses Tesla employees in leaked email: claims higher comp than Ford/GM, lower incident rate, & new ‘roller coaster’

Feb 24, 2017 - This is why we hired thousands of additional team members to create a third shift , which has reduced the burden on everyone.

Reading this e-mail to employees was very helpful for me. Thank you for posting it.

 

[bonaire]

For this quarter? I have as of this point in April (starting with Apr 1):
MS 4100 MX 2600

A lot of the last few thousands were Vins assigned for Inventory. MX has slowed since those bursts in March of Vin #s that presumably will be built in Q2.

The MS pattern is a bit "toppy" and just recently slipped above 1000/wk again.

Below, this is what inventory MS Vin assignment looks like (discovered inventory per-1000 vin #s) and shows that they want to produce and distribute a good number within Q2. When inventory builds while the actual Vin # assignment is relatively flat, it means custom orders coming in may have slowed a bit. AP 2.0 inventory with the full self driving (FSD) may be a cool thing to show off and sell "today" from the sales locations. If FSD is done, deployed and well working option. Most of the inventory that I count does not include those outside of the USA and some of Europe. ev-cpo.com does a poor job now of allowing European MX inventory to be seen, so it's kind of a bust for Model X but works ok for MS. Can't see into Asia much at all other than Hong Kong which is losing some of the tax benefits, based on recent news.

Interesting tidbits.
Many Vin #s in the series 193xxx and 194xxx showed up on ev-cpo.com for Great Britain even before US-based ones did. This implies these numbers were either built-early or they are listing online cars in-transit to allow GB to buy from inventory in-flight before the tax breaks run out.

From the tracking spreadsheet indicates some buyers with Vin #s well below 193xxx have not yet gone into production - showing that inventory layout is important for Tesla and has been since early to mid 2016 (if not before).

 

[dennis]

I have difficulty reconciling this supposedly larger backlog with the speed with that orders get produced. For example I count 26 Model S orders that confirmed in March with delivery ASAP. 6 of them went in production the same month, another 15 went in production the first half of April and 1 4/19 and the rest were just not updated.

Using the Model S spreadsheet I have been tracking the average time from order confirmation to production start for all orders that specify Earliest delivery. I like this stat because once an order is confirmed Tesla can start to produce that vehicle whenever it fits into the production queue.

For all of Q1 the average was around 38 days. For Q2 it started low at 11.7 days but over the past 2 1/2 weeks it has trended up to 16.2 days. All averages are quarter-to-date. Attached is the spreadsheet extract.

It will be interesting to see how this trends for the rest of Q2. Declining numbers would indicate a fall off in demand relative to production slot availability, while a steady or increasing average would show that demand is firm.

 

[30seconds]

When judging demand I also look at resale value/ prices vs S class & other luxury cars. Used market is also a supply vs demand market and based on the number of Model S cars produced over the last 3 years there should be plenty of used car supply.

What we see is higher resale values vs cars sold in same price range when new. This is indicative of quite a lot of demand for Tesla cars in the $40-$60k segment.

tl;dr: sure are a lot of people buying $50k used Teslas when they obviously could afford a new E-class or 5-series. I think Tesla demand is bigger than you think.

 

[schonelucht]

Using the Model S spreadsheet I have been tracking the average time from order confirmation to production start for all orders that specify Earliest delivery. I like this stat because once an order is confirmed Tesla can start to produce that vehicle whenever it fits into the production queue.

For all of Q1 the average was around 38 days. For Q2 it started low at 11.7 days but over the past 2 1/2 weeks it has trended up to 16.2 days. All averages are quarter-to-date. Attached is the spreadsheet extract.

I agree it is a good stat. The timing of the uptick suggests the better value proposition on the low end is working as a demand driver.

 

[Spidy]

Using the Model S spreadsheet I have been tracking the average time from order confirmation to production start for all orders that specify Earliest delivery. I like this stat because once an order is confirmed Tesla can start to produce that vehicle whenever it fits into the production queue.

For all of Q1 the average was around 38 days. For Q2 it started low at 11.7 days but over the past 2 1/2 weeks it has trended up to 16.2 days. All averages are quarter-to-date. Attached is the spreadsheet extract.

It will be interesting to see how this trends for the rest of Q2. Declining numbers would indicate a fall off in demand relative to production slot availability, while a steady or increasing average would show that demand is firm.

One thing you have to keep in mind is that Tesla mostly stopped to build custom Model S in the week of 17.4-21.4. So that obviously resulted in a increase from order to production time.

 

[bonaire]

One thing you have to keep in mind is that Tesla mostly stopped to build custom Model S in the week of 17.4-21.4. So that obviously resulted in a increase from order to production time.

Is this a confirmation of another line stoppage for retooling?

I have had a thought that during the ER on May 3 they may announce an early start for the first Model 3 production. Not a lot of them but a chance to produce actual production cars at end of June. This may also be one of the ticks that are checked for Elon's big stock option grant. hard one is the four quarters of 30% gross margin.
Elon Musk is on track to collect $1.6 billion from Tesla

 

[Spidy]

I doubt it, especially since a few cars were still built. Most likely they just build Inventory cars. Or Model X. Maybe also Model S for non-US markets those people don't tend to post in the sheet.

 

[JRP3]

I have had a thought that during the ER on May 3 they may announce an early start for the first Model 3 production. Not a lot of them but a chance to produce actual production cars at end of June.

Wait, you're predicting Tesla will produce something early? Was your account hacked by a bull?

 

[dennis]

Wait, you're predicting Tesla will produce something early? Was your account hacked by a bull?

Nope, he's just trying to set us up for a disappointment.

 

[Spidy]

Pretty interesting what kind of VINs are showing up for both Model S and X Inventory cars. VINs around that number have just been assigned around a week ago for custom orders yet inventory is already showing up, some even in Europe. Looks like Tesla is no longer assigning those consecutive, but sometimes skips over a small VIN range and later assigns those to custom orders while already having build inventory cars with VINs higher than even assigned for customers. Makes it a bit difficult to gauge current demand by counting VINs.

 

[schonelucht]

It's actually nothing new. Happened earlier quarter as well. I suppose what happens is that cars are shown as available inventory as soon as they are produced. What makes VIN counting less certain these days in terms of demand is the increasing importance from inventory sales, which are really difficult to track. And an inventory sale is obviously just as good wrt demand as a custom sale.

 

[bonaire]

It's actually nothing new. Happened earlier quarter as well. I suppose what happens is that cars are shown as available inventory as soon as they are produced. What makes VIN counting less certain these days in terms of demand is the increasing importance from inventory sales, which are really difficult to track. And an inventory sale is obviously just as good wrt demand as a custom sale.

The flavor of these euro-jumps in "very recent Vin #s" is new to me this quarter. It's like Europe had pre-assigned Vins long ahead of time so that when they show up there, they are within the same ranges as the USA when those come up as inventory. Or, maybe they list them on the web while they are in transit so folks can grab them and route them to chosen-cities while in-transit. That would be a smart logistics move. Active sales associates in sales centers (OAs in SCs) could sell from the national inventory book and "route" them on-demand.

Now, the only other time I remember this happening was the 168xxx vin # range which happens to be the most inventory Vin #s within one 1000-range in history (A new record!) - there, about 58% or more of that 1000 range became inventory. It included some early P100D units like the one that showed up as a crashed white unit with Vin 168336 (IIRC). That 168xxx range was right about the time of AP2.0 equipment switchover so perhaps they assigned and built some early for testing out AP 2.0 HW and 100D batteries. Inventory builds in Europe seem to be currently heavy in Great Britain and Germany - at least that's what ev-cpo.com is helping visualize.

 

[Spidy]

Estimated delivery in Europe is now July. Changed is around one 1 month later than in Q1. Probably also most likely mainly due to shipping time.

 

[dennis]

Estimated delivery in Europe is now July. Changed is around one 1 month later than in Q1. Probably also most likely mainly due to shipping time.

Plus there is no scheduled production downtime this quarter as far as we know.