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dc_h
Active Member
Elon tweeted that X production is now even with S. So are they steady around 2000 total a week, or are they edging up to 2500 capacity? Profit margins must be very strong if they can produce over 2000 a week. If they can sell over 1000 Model X's a week, they should be able to continue to drive down costs or improve features in the second half without sacrificing overall margins. If they can make and sell 2200 X & S a week for the second half, that is 57,000 cars. Add in 25 to 30 thousand Model 3's and we'll have an exciting second half.
I think I estimated 130,000 for the year and was feeling I was too optimistic. I think 130k is starting to look very possible, if not likely.
I think we can put this topic to rest now. If by "demand constraint" we mean the growth of cars delivered is limited by the growth of demand, not production, Model S/X are clearly demand constraint now. Three points:
1. In the recent ER letter, management said "This growing demand gives us even more reason to expect increased deliveries of Model S and Model X in the second half of this year". Never once before they used language even remotely like this. Always production hurdles.
2. Also in the ER letter, "In July, our weekly net order rate for these vehicles was about 15% higher than our Q2 average weekly order rate". Q2 monthly average was 7300, 115% of this is 8400, or 25200 for the quarter. Last 2016 Q3 was 24500. This would be the first time in Telsa's history of having an almost flat growth in delivery YoY. Of course the 25200 didn't include Model 3, but first the Model 3 number will be very small and second this thread is only discussing Model S/X so far.
3. Model X flat price cut. Tesla pulls demand lever every now and then like pushing discounted inventory, making supercharging free for limited time, referral bonuses, etc. But correct me if I'm wrong, I think this is the first time ever they simply slash the price on custom orders.
I don't think being demand constraint is a big problem. There are still many ways to increase demand. And I also think demand would grow naturally by high single or low double digits from now on, which is not bad at all considering how much market share Tesla has already devoured. Also with the Model 3 ramp up, they don't have the resources to increase Model S/X production anyway. But I just think the years-long question is finally answered now.
1. In the recent ER letter, management said "This growing demand gives us even more reason to expect increased deliveries of Model S and Model X in the second half of this year". Never once before they used language even remotely like this. Always production hurdles.
2. Also in the ER letter, "In July, our weekly net order rate for these vehicles was about 15% higher than our Q2 average weekly order rate". Q2 monthly average was 7300, 115% of this is 8400, or 25200 for the quarter. Last 2016 Q3 was 24500. This would be the first time in Telsa's history of having an almost flat growth in delivery YoY. Of course the 25200 didn't include Model 3, but first the Model 3 number will be very small and second this thread is only discussing Model S/X so far.
3. Model X flat price cut. Tesla pulls demand lever every now and then like pushing discounted inventory, making supercharging free for limited time, referral bonuses, etc. But correct me if I'm wrong, I think this is the first time ever they simply slash the price on custom orders.
I don't think being demand constraint is a big problem. There are still many ways to increase demand. And I also think demand would grow naturally by high single or low double digits from now on, which is not bad at all considering how much market share Tesla has already devoured. Also with the Model 3 ramp up, they don't have the resources to increase Model S/X production anyway. But I just think the years-long question is finally answered now.
pz1975
Active Member
I don't consider them truly demand constrained until the cars (S and X) are available in all addressable markets and they have resorted to traditional advertising like all other car companies. I think they are "relatively" demand constrained at their current state of availability, pricing and advertising, but they have many levers to pull to increase demand over time as they need.
For example, they could lower prices by another 10% and get a huge surge in demand and still have margins above levels of most car companies. Then they would become production constrained again. Thus, demand vs. production constraint is a constantly shifting relationship depending on various factors.
I think their goal is to balance the demand and production constraints so they produce and sell the maximum number of cars they can at the greatest net profit.
For example, they could lower prices by another 10% and get a huge surge in demand and still have margins above levels of most car companies. Then they would become production constrained again. Thus, demand vs. production constraint is a constantly shifting relationship depending on various factors.
I think their goal is to balance the demand and production constraints so they produce and sell the maximum number of cars they can at the greatest net profit.
I think they can still show growth y-o-y on the S+X due to more inventory sales. That's where Tesla positioned itself for going into the model 3 reveal and from first feedback on the CC it worked. Still hoping for 28k S+X en 2k 3.
First VINs around the delivery Event are showing up in the Model S spreadsheet. Still a bit early to tell, but seems like roughly a 1000 orders in 5 days. Definitely a bump if Tesla didn't assigned inventory in that time, but also nothing too crazy
Also an interesting observation, some of the cancelled and den reordered orders after the 75kWh air suspension change fell into this time window.
Also an interesting observation, some of the cancelled and den reordered orders after the 75kWh air suspension change fell into this time window.
Tesla is now advertising on autotrader and cars.com. The West Palm Beach center has about a dozen used Teslas listed. I think I also saw some from the Atlanta center listed. New policy for them to advertise? Do they need to do this to sell current inventory?
I think they just want to move their CPO cars. Especially now that they are getting new P100Ds as loaners those CPOs are just sitting around and losing value. And space might also be an issue since there Inventory is growing.
I don't know if anyone had some prices to compared, but I bet they dropped the price a nice amount on Autotrade since they now don't have to provide the warranty. Also they don't have to bother about certifying the cars which makes it cheaper and also frees up employees.
I don't know if anyone had some prices to compared, but I bet they dropped the price a nice amount on Autotrade since they now don't have to provide the warranty. Also they don't have to bother about certifying the cars which makes it cheaper and also frees up employees.
SebastianR
Active Member
It really looks like Tesla starts to have flexibility on the Model S / Model X front, while it has immense constraints on the Model 3 side of things. And when I say "flexibility" I mean production capacity + production costs. So from a demand side of things, I'm all good with 0% financing, zero down leases etc. unless they re-introduce a Model S60 or a some kind of "dumping" version of the Model S/X.
Think about it: If you can delivery the top models, but you can't deliver the next level down, it makes sense to upsell come hell or high water. Once the Model 3 is in regular production, I don't ever want to see that kind of behaviour again but until then I would venture to say that even a "zero down, zero % interest" kind of financing/leasing type sale of a X/S75 is more profit for Tesla than a medium-trim Model 3 paid in cash (since Model 3 margins are not there yet). So why not try? Especially when you consider that this kind of "promotion" probably only works for some 6 more months... (assuming a well working Model 3 ramp)
Think about it: If you can delivery the top models, but you can't deliver the next level down, it makes sense to upsell come hell or high water. Once the Model 3 is in regular production, I don't ever want to see that kind of behaviour again but until then I would venture to say that even a "zero down, zero % interest" kind of financing/leasing type sale of a X/S75 is more profit for Tesla than a medium-trim Model 3 paid in cash (since Model 3 margins are not there yet). So why not try? Especially when you consider that this kind of "promotion" probably only works for some 6 more months... (assuming a well working Model 3 ramp)
Observations about MS and MX demand on this page should be looked at in the context of M3 launch. The pause in the demand, if you will, was clearly linked to this launch. Elon's concern about osborning of MS sales was palpable during the event and prior to it. The remarkable change in his mood during the Q2 ER speaks for itself, as apparently their concerns in this regard proved to be overblown.
The jury is out whether we will see annual demand for MS/MX going from 100K to 120K and higher, but so far the signs are encouraging.
Missing the context of the Model 3 launch, IMO, voids essence from the discussion about demand.
The jury is out whether we will see annual demand for MS/MX going from 100K to 120K and higher, but so far the signs are encouraging.
Missing the context of the Model 3 launch, IMO, voids essence from the discussion about demand.
I think Tesla manages S/X demand to hover around 100k. That's their production capacity for the foreseeable future : I vaguely remember one of their last conference calls they said they don't plan any investment in S/X production for the next quarters. It makes no sense to let demand grow to 120k if you can only produce 100k. What I think (hope) is that they use this reverse osborne situation (where model 3 interest generated additional S/X demand) to draw down a bit on inventory, especially cars that will be obsolete in a few months. They have at least 5000-6000 cars like that on the books. Drawing that down should allow for 30k+ deliveries this quarter of which 28k are S/X but then going forward I think we will revert back to 25k S/X average. And that with a whole lot less demand levers than they've needed so far.
What is included in your definition of "Inventory" and how many you believe they have right now? (A)
What do you think they currently need as a normal course of business to service and sell cars (loaners and demo cars)? (B)
Presumably the reduction in "inventory" that you are looking into would bring A down to B. What is your take on A and B?
Inventory = every car that Tesla is willing to part with. From current practices that just means every car that isn't used for R&D. Loaners and demo cars are fair game. My estimates for their current inventory at the end of last quarter. 16322 cars produced but not delivered. Minus 3500 in the pipeline. Minus 1000 used over the years for regulatory purposes. Minus 2000 used for R&D. Basically somewhere around 10k cars. Obviously rough count. Could easily be 1000 more or 1000 less.
Need? 0. Car sells itself and service can be dealt with through hire cars.
Well, the B answer should be rephrased to 'how much car do they desire in each showroom'. I think they desire at least a few cars in each showroom. Let's be generous and call it an even 3000.
My hope is a drawdown of A by about 3000 cars this quarter which would allow them to deliver 30k cars so that they can keep their yearly growth streak on S/X deliveries going for one last crucial quarter. With the nice deals on expiring inventory and the reverse osborne effect of the M3 first delivery events, this does not seem a stretch goal and is inline with management communication that they are seeing a pickup in July. I am also noting a slight expansion of the time between VIN assignment and start of production which could be an early sign in support of that thesis.
FlatSix911
Porsche 918 Hybrid
I think the point was that a Zero down lease attracts monthly payment buyers who may not have the down payment available.
This has been known to increase demand in certain demographic groups ... and more Tesla's on the road is a good thing
SebastianR
Active Member
I think the point was that a Zero down lease attracts monthly payment buyers who may not have the down payment available.
This has been known to increase demand in certain demographic groups ... and more Tesla's on the road is a good thing
Agreed. And my point was not to mis-characterise the kind of lease that's available - sorry if my point was not clear
My point was solely that Tesla has a unique option to up-sell at this point in time. And that I like Tesla doing that as I assume that an base trim S/X75 has better margins today than any Model 3 (+we have a serious shortage of Model 3s).
But with this I'll go back to lurking only in this thread: I have to admit that I always found this Tesla Demand discussion slightly esoteric. I agree that Tesla is fine-tuning the day-to-day order rate to match guidance and production capability but for both Model S and Model X we have not yet seen any end to demand growth. From my perspective, we can continue to discuss once we see Model S/X sold in all countries of this earth have had at least one more cycle of internal and external refreshs and at least one more global recession...
dennis
Model S Plaid
I thought you were kidding but I guess not. The car most certainly does not sell itself, especially since 95% (my estimate) of Tesla sales are conquest sales from owners of other brand cars. Just as one example, Tesla is providing overnight test drives to qualified buyers. That requires one inventory car for every such test drive they want to offer on a particular day.
As for service loaners vs. hire cars, a friend with a 2015 S70 brought it in for a broken window replacement and was given a 90D as a service loaner. He really liked the better seats and also decided it would be nice to have some additional range. So he purchased a 100D. Before his service experience, he was not contemplating getting a new Model S.
IMO Tesla has been demand constrained since the summer of 2016, when they first slumped a little and started pulling demand levers like crazy from Q3/2016 forwards. The demand levers have massively increased since summer of 2016. So, obviously I agree with the posts that they are also demand constrained on Model S/X now when Model 3 is looming.
It is true Tesla could add demand by introducing new markets, but obviously we are looking at the markets they are in, not hypotheticals.
IMO you are production constrained when more people are lining to buy your car than you can make. This used to be true earlier in Tesla's history. But with Tesla having to use furious demand levers that is not the case anymore, if it were you wouldn't be able to get a factory order in a matter of days anyway...
Obviously Tesla is not production constrained (in the sense that production is less than demand) on Model S/X anymore. That fallacy IMO just has to stop, it is not helpful.
It is true Tesla could add demand by introducing new markets, but obviously we are looking at the markets they are in, not hypotheticals.
IMO you are production constrained when more people are lining to buy your car than you can make. This used to be true earlier in Tesla's history. But with Tesla having to use furious demand levers that is not the case anymore, if it were you wouldn't be able to get a factory order in a matter of days anyway...
Obviously Tesla is not production constrained (in the sense that production is less than demand) on Model S/X anymore. That fallacy IMO just has to stop, it is not helpful.
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