Goodwill and the Envelope Method

[22522]

There are a lot of people that are fans of Tesla, that have never bought a car for over $30,000.

Many of these people put down a deposit on a Model 3 expecting the full $7,500 tax credit, and will not buy the car without it. The sale will never happen.

Tesla appears to need money, and is playing games with options, delivery and eligibility to extract the maximum amount of money out of each sale. In doing so they are trading a goodwill cash flow for finite cash now. And losing a customer set- ordinary people that need the $7,500 tax credit to buy the vehicle and were once fans of Tesla.

There is another solution.

Ordinary people use this method, the envelope method, to manage their finances:
The Envelope System Explained

As Jim Cramer explained:
Jim Cramer Reveals the Real People Buying Tesla's Stock

People who own the car buy the stock.

Key point being, stock investments come out of a different envelope than transportation funding.

If Tesla alters the proposed product mix to capture sales at $27.5K, that will otherwise not happen at all, demand for the stock will stay high because there will be more investors, and more goodwill.

 

[MXWing]

There's no competition at 49k so they need to answer to me as a shareholder to sell them at 49k for as long as they can.

 

[ItsNotAboutTheMoney]

If making good, cheap electric cars were easy, there'd be more electric cars.

Tesla's not going for mainstream because
(1) nobody can currently make a good, cheap BEV
(2) it would need better economies of scale to make vehicles at mainstream pricing
(3) it needs high margin to deal with its significant debt
(4) it believes in medium-term full autonomy, and full autonomy would devastate the mainstream market.

 

[Ssssly]

I disagree with your premise. The $35k entry level is comparable to the target market (BMW, MB, Audi, etc) on initial cost and the M3 has a better TCO (~$.012/mile by my calculations w/o the credit).

There may be a small percentage of reservations that expect/need that credit to move up the market, but I do not see that significantly changing the demand for the vehicle.

It is also important to remember that Tesla hasn't even marketed this vehicle and I believe can increase demand rather quickly if needed.

 

[scaesare]

Tesla has also indicated their intent to stage and ship orders to maximize the possible tax credit benefit for as many folks as possible. As such, I'm not sure it's correct to categorize them as "trading good will" in some sort of money grab.

They are certainly trying to make smart business decisions, but they are also looking out for their customer base to the extent possible as well.

 

[dsvick]

Tesla appears to need money, and is playing games with options, delivery and eligibility to extract the maximum amount of money out of each sale. In doing so they are trading a goodwill cash flow for finite cash now. And losing a customer set- ordinary people that need the $7,500 tax credit to buy the vehicle and were once fans of Tesla.
...
If Tesla alters the proposed product mix to capture sales at $27.5K, that will otherwise not happen at all, demand for the stock will stay high because there will be more investors, and more goodwill.

You're forgetting that Tesla essentially doubled their ramp up speed. With the original ramp up there would have been very few model 3 buyers that received the tax credit. By increasing the ramp up they have essentially managed to give tens of thousands of people a chance the credit that otherwise would not have had a chance. Many of those people will buy $35K base models. I don't think anyone is in any position to begrudge them the opportunity to earn the money they need to support the ramp up that will benefit so many people.

 

[melindav]

It is also important to remember that Tesla hasn't even marketed this vehicle and I believe can increase demand rather quickly if needed.

imagine the response if MKBHD's Tesla ad was played during the Super Bowl.... it is certainly more interesting/compelling the most any other car commercial aired.

 

[22522]

You're forgetting that Tesla essentially doubled their ramp up speed. I don't think anyone is in any position to begrudge them the opportunity to earn the money they need to support the ramp up that will benefit so many people.

Not forgetting or begrudging. Just pointing out that after the tax credit expires there is a set of customers that will not be there anymore.

So price elasticity exists.
The expiration of the tax credit calls for a different early product mix than a normal product introduction calls for.

... If you want maximum positive future for Tesla.

 

[thx1139]

To maximize the tax credit based on the rules it doesnt really matter which cars Tesla sells to hit the 200K number in the US. To maximize the credit they hit the 200K number very early in a quarter. So maximizing the revenue on cars the remainder of this year is the best course of business to have funding to produce as many cars possible for those 6 months before the Tax Credit starts to lower. Hit the 200K number in early January and be full speed ahead with the 35K cars.

 

[animorph]

Seems quite possible that the average selling price of the 3 would end up being lower after the tax credits expire. Maybe they should be selling all the higher-priced cars they can now.

The full tax credit will be available for many $35k 3 buyers if it lasts through the first two quarters of 2018. A partial tax credit should be available for all current U.S. reservation holders (mid 2019) if Tesla is careful in their timing.

 

[Skotty]

I wonder if some people overestimate the impact of the tax credit. Sure, some people who plan ahead will factor in the tax credit, and may choose not to buy a Tesla without the tax credit, when they would have bought it with the tax credit. But everyone who CAN buy a Tesla, credit or not, has to have enough money to actually buy the Tesla without a tax credit, because the tax credit comes later at tax time, sometimes up to a full year later. The tax credit is a nice big bonus after the fact, but it's still after the fact.

 

[SageBrush]

I wonder if some people overestimate the impact of the tax credit. Sure, some people who plan ahead will factor in the tax credit, and may choose not to buy a Tesla without the tax credit, when they would have bought it with the tax credit. But everyone who CAN buy a Tesla, credit or not, has to have enough money to actually buy the Tesla without a tax credit, because the tax credit comes later at tax time, sometimes up to a full year later. The tax credit is a nice big bonus after the fact, but it's still after the fact.

Interesting that you would think this way for America at large, where financing is King, GM exists to serve the sub-Prime market, and the Germans cater to a lease market.
Overwhelmingly, people will be financing the $7,500 for up to a year.

 

[MP3Mike]

There are a lot of people that are fans of Tesla, that have never bought a car for over $30,000.

Many of these people put down a deposit on a Model 3 expecting the full $7,500 tax credit, and will not buy the car without it. The sale will never happen.

And how many of those people have figured out that they would actually be eligible for the full tax credit. A lot of people stretching to buy a Model 3 might only be able to use a portion of the tax credit so it wouldn't be as big of an impact to them when the credit drops to $3,750.

But in any case it appears that almost anyone in the US that reserved early will be able to get a $35k Model 3 and the full tax credit. So I see nothing wrong with what Tesla is doing. (If you are waiting for the AWD or P version that is a different story...)

 

[MP3Mike]

Interesting that you would think this way for America at large, where financing is King

But you still have to qualify for the full loan including the $7,500 before you can get it.

 

[Skotty]

Interesting that you would think this way for America at large, where financing is King, GM exists to serve the sub-Prime market, and the Germans cater to a lease market.
Overwhelmingly, people will be financing the $7,500 for up to a year.

How does that work? I bought a Volt for about $40K. I knew about the tax credit, but it was still a $40K car, on a loan for a $40K car. Come tax time, I got a big fat check back due to the $7,500 tax credit. I suppose I could have used it entirely to pay down the loan if I had wanted to. I think we used it on a higher interest debt at the time (IIRC we got a 0 percent loan from GMAC for the Volt, and we still had some other outstanding debts from college; I would do the same thing again if I were to repeat that scenario today, only the outstanding debt I would throw the tax credit refund at would be my mortgage).

Is there some more advanced type of loan in some states or recently that somehow packages the tax credit in somehow? If so, I didn't know about it.

 

[SageBrush]

How does that work? I bought a Volt for about $40K. I knew about the tax credit, but it was still a $40K car, on a loan for a $40K car.

I meant that, like in your case, you financed $40k instead of $32.5k. So the question our generic American faces is whether they can handle an additional ~ $130 monthly payment for up to a year until tax return time.

 

[22522]

Envelope people have no trouble getting loans and would do a Roth conversion to create tax liability in the year of the rebate.

 

[timk225]

Envelope people are pathetic. If you are that undisciplined with your money that you have to rely on some paper envelopes to keep your spending in check, then you will never be able to afford a Tesla.

Unlike me.

 

[FlatSix911]

There are a lot of people that are fans of Tesla, that have never bought a car for over $30,000. Many of these people put down a deposit on a Model 3 expecting the full $7,500 tax credit, and will not buy the car without it. The sale will never happen.

Tesla appears to need money, and is playing games with options, delivery and eligibility to extract the maximum amount of money out of each sale. In doing so they are trading a goodwill cash flow for finite cash now. And losing a customer set- ordinary people that need the $7,500 tax credit to buy the vehicle and were once fans of Tesla. There is another solution.

Ordinary people use this method, the envelope method, to manage their finances:
The Envelope System Explained

As Jim Cramer explained:
Jim Cramer Reveals the Real People Buying Tesla's Stock

People who own the car buy the stock. Key point being, stock investments come out of a different envelope than transportation funding.

If Tesla alters the proposed product mix to capture sales at $27.5K, that will otherwise not happen at all, demand for the stock will stay high because there will be more investors, and more goodwill.

Complete nonsense ... please retake Econ 101

 

[MXWing]

Envelope people are pathetic. If you are that undisciplined with your money that you have to rely on some paper envelopes to keep your spending in check, then you will never be able to afford a Tesla.

Unlike me.

The moron who popularizes the envelope system today has a net worth of 55 million.

He can write Elon a check for Roadster 2.0 SN1 right now and I guarantee he's not going to whine about $1000 to change his paint color.