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Is the third quarter push for deliveries really good for Tesla’s future?

Discussion in 'Tesla Motors' started by RBowen, Sep 22, 2016.

  1. RBowen

    RBowen Member

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    The reality is that the push for deliveries at the end of Q3 has occurred. Elon Musk’s email to employees on 29 August makes it clear he feels it is important to be ‘cash flow positive’ and ‘profitable’ for Wall Street, e.g., Tesla is “on the razor’s edge of achieving a good Q3, but it requires building and delivering every car we possibly can, while simultaneously trimming any cost that isn’t critical, at least for the next 4.5 weeks.” (Bloomberg 2 Sep 2016)

    My question is: Given the publicity around Elon’s email, is this third quarter push for deliveries good for Tesla owners and stockholders?

    I’ll get this going with a few thoughts (unfortunately none of them especially positive):
    • The capital markets are not going to be surprised (favorably) if Tesla happens to be Cash Flow positive or profitable because they now know how it was achieved.
    • The EOQ push broke Tesla’s simple “no-discount” model. Discounts were everywhere. Now many potential buyers will just wait for EOQ discounts to get a good deal.
    • People who had deliveries scheduled in Q4 at full price switched to buying an inventory car at big discounts. This suggests fewer sales in Q4 and lower profit margins in Q3.
    • The unusually large quantity cars to be delivered at the end-of-quarter 3 could be hurt quality and damage the reputation of Tesla.
    • The unusually large quantity cars to be delivered at end-of-quarter 3 (plus all of the future repairs caused by inadequately prepared new cars) could lead to even greater service backlogs for existing customers – further damaging Tesla’s reputation.
    Why would stockholder’s respond positively to all of above when the EOQ push for deliveries is (at least) a short term distortion of Tesla’s business model? Tesla prides itself for rethinking the automobile business from the ground up. These actions look like old school short term thinking. What do you think? Thanks.

    (Full disclosure. I am trading my 2103 Model S60 on an refreshed 2016 inventory Model S75D, because I got a huge discount in this EOQ push for deliveries, i.e., self-interest at work.)
     
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  2. jeffro01

    jeffro01 Active Member

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    My take from an ownership, not investor (long on TSLA), on this is one of concern and disappointment. I envision this will be like the last time where the loaner inventory for service is absolutely gutted thereby negatively impacting current owners needing service. It's ridiculous that anyone is forced to take an ICE loaner while their electric car is in service...

    Jeff
     
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  3. theslimshadyist

    theslimshadyist NashVegas!

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    I'm in the tech industry and this is common especially at EOQ. The bad from this behavior is that it has conditioned clients that they will hold off on making a purchase until EOQ as they know they have more leverage to negotiate and get the best possible deal.

    This isn't anything new.
     
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  4. Vitold

    Vitold Member

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    #4 Vitold, Sep 23, 2016
    Last edited: Sep 23, 2016
    As Tesla is pushing as many cars as they can out the door they identify bottlenecks and brainstorm solutions real-time. Considering that Tesla is set to grow exponentially they need challenges like this. If they achieved their goal this is also going to be a morale booster.

    This was also the right time for the "sale" since Bolt, BMW marketing started throwing shade causing some confusion and uncertainty for some people and ICE end of the year sale starting soon.

    EDIT: As to the "large" discounts given on 75D - keep in mind that all were highly optioned models that carry higher profit margins and, if they were sold as 60D Tesla would make the same amount.
     
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  5. McRat

    McRat Active Member

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    Sidebar, for those in purchasing, or oversee the purchasing dept:

    It's normally a sign of a supplier who is about to collapse. When you see this trait, revalidate your second source immediately.

    Understand that a panic production push increases unit production costs and trashes your quality management system. This means that a correctly configured company would lose a huge amount of money doing this. You have to ignore your "continuous quality improvement" commitment then explain it to your outside ISO auditors. I've never seen a company sustain it's certification using panic pushes.

    Is it common? Oh yeah. Do your best suppliers do it? No.

    Now, don't confuse this with a sales push. Sales and production are two different animals.
     
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  6. X Yes?

    X Yes? Member

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    This is a desperation move by Elon Musk in an attempt to keep his empire from collapsing. Space Ex explosions and SolarCity troubles come at a bad time when all companies need more capital. This attempt at "profitability" in the third quarter is not likely to help the stock price, after it has been revealed how it was achieved. It may not even prevent a margin call on Musk's highly leveraged positions in Tesla and SolarCity.

    The sales force has a tough row to hoe, going forward. It will be hard to ask for MSRP with a straight face. No haggle pricing has never worked in the Auto industry, manufacturers have always needed a way to balance supply with demand. Adjusting prices has always been the lever that works best. I'm surprised advertising was not tried first, although that takes too long to kick in for this fire sale.
     
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  7. 22522

    22522 Member

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    Yes. As the model 3 approaches it will freeze more sales unless Tesla clearly differentiates. There needs to be some cushion on the 200000 to give the factory time to get up to speed.
     
  8. sandpiper

    sandpiper Active Member

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    I don't entirely agree but there are some valid points here. How do you now do fixed price online sales when people know that you you can haggle at the store? And what will that do to change the sales experience. The folks who sell cars have a reputation as being aggressive and a bit "loose with the truth" simply because those people tend to be successful in sales.

    One further point is that this portends (I think) a general reduction in price. Tesla is clearly no longer strictly production limited - and so they have to do some things to push demand. I believe you we will see a general reduction in the prices of the S and X in the near future. And that's probably appropriate. They have solid margins, they've gone some ways to depreciate the cost of the capital in the production line and the added volume will reduce the unit production cost.

    It will be interesting to see how this works out. When it comes time to replace my P85D, I'll definitely be going into the store to see what reductions will be available.
     
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  9. DriverOne

    DriverOne Member

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    Haven't they had a push at end of every quarter? I certainly remember others. The difference is that the time it might lead to a (small) profit - a simple goal for employees to strive hard for . Nothing concerning to see here. They would have the push anyway. It's true of many public companies that report on a quarterly basis.
     
  10. Ulmo

    Ulmo Active Member

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    #10 Ulmo, Sep 26, 2016
    Last edited: Sep 26, 2016
    I think Tesla claims to rethink the industry from the ground up, but they just said that after the fact after they redesigned a bunch of it. I wish they would rethink it from the ground up, now.

    A positive effect of this push to sell a lot is they get some experience at higher volume, something they'll need with Model 3. I don't know if anyone was paying attention and the lessons learned are applicable to a different market segment, but there might be some benefit.

    And finally, there were a lot of silly claims that Tesla can never turn a profit, either at the older models, or in the newer models, because they don't have what it takes and can't make the ends meet financially as a profitable entity. This might have been getting in the way of developing capital for new products, at a key time when timing makes a huge difference in market share*. This pause to show revenue will show that not only can they, but they are willing to do so, without just "taking the money and running away".

    It's kind of like seeing someone who shows up with a nice smartphone. You are left wondering, did they spend all their money on that phone, and now have nothing left, and are a risk, or does this mean they have so much more money in the background that this phone was easy for them to get, and they are not a risk? Then, they sense your concerns, pick the smartphone up, call some customers up and say "hey do you want me to sell you twice as much next week for a 10% discount?" and you hear their customers shout "hell yeah!". You're left thinking, did they just take a bath on that 10%, or do they have everything under control? Probably the latter. You're also thinking, did he just do that for my benefit, and he's being too much of a show-off, hiding an interior insecurity? I think the answer to that is that the insecurity is already out in the open, simply from all the FUD published, so this is in answer to that. And, let's face it, market share and seeing Teslas on the road helps the brand. Right now, there is a little bit of a fear in *some* potential customers mind that the fancy Tesla, even the lowly Model 3, is *too* fancy for their neighborhood and everyone will start knocking on their door asking for loans and charging them double (or triple) at the corner store. But, if they're a boring, ho-hum, barely fancy car, then that will be perfect for these fearful Model 3 potential customers to think, oh gosh, it's not too fancy. A lot of this discount push is about appeasing potential Model 3 buyers from many angles. (It has been said many times Model S buyers often forget that they are not the only market segment Tesla is going after. It's not an accurate thought, but often much more accurate than people naturally think.)

    This entire thing is a nod to the concept that having it and not needing it is better than not having it and wanting it. Making a few more bucks by delivering more product during a time when their ability to make bucks and sell product is in question should help, even if it is technically rocking the boat a little bit. Getting all bent out of shape for a little 10% discount and a spike of shipments seems excessive. Have you looked at their value changes over the years? They keep modifying their product lineup and the costs quite a bit.
    -------
    * (as well as reducing dirty fuel use in our planet before we asphyxiate, but sometimes those who don't breath the California air that is getting harder to breath every year think this is a silly excuse (rather than a legitimate profit driver due to need), so they don't try to put too much into this reason 100% of the time even though it is a major reason for doing clean energy sooner rather than later; it distracts from the real profitability issue, which thankfully, they can answer, yes, we can profit, and will).
    It might be both bad and good: The good about offering a way for people to self-discount a purchase is that it pushes those who are organized or needy enough to get the discount into the discount periods and the rest of the customers pay full fare. Tuned correctly, this can pick up a greater total proportion of money. (Tuned incorrectly, I suppose it could fail to do so.) In terms of tuning, I think this selling inventory vs. ordering new has a great appeal from the Tesla point of view: there is diminished value in getting what options someone else picked for you rather than picking your own options, even though the material costs are the same. However, if that diminished value means lower cost for you and thus they can ship higher quantities and get a total greater profit, then the value to the provider is good. I learned this first hand since I ordered new myself, and while preparing for delivery I ran into banking issues, and during this when I learned of the discount program, rather than wait a month for my bank to straighten out I tried to find a way to turn a discount into a way to get in my new vehicle faster. What I found out was that they only built one car with the options I wanted: the one I ordered. And, it turns out, it is the only one I am willing to buy in the near to medium term. Which means, I'll pay full price for it as ordered. (Ask me about this in 3 months when I am driving it with AP1.0 hardware and all the new cars have AP2.0 hardware. I'll probably feel great about it, but that's just a guess.)
     
  11. Ulmo

    Ulmo Active Member

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    Seems like a little of both, this time. They offloaded some production to SC's this run around, but they're already good at that.
    Have to, or can?
     
  12. sandpiper

    sandpiper Active Member

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    I don't know that the SCs are carrying a lot of production. Mine is in for service and it appears that there's not a loaner to be found anywhere. They're giving everybody rental ICEs. I wonder if they've sold-off the skateboards that they had on show at the stores?
     
  13. PtG62901

    PtG62901 Member

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    Q3 was a good example they they can handle the Model 3 and be profitable. Since the short term goal is to raise money cheaply, it makes sense.
     
  14. Krugerrand

    Krugerrand Active Member

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    It might miff some Tesla owners who can't get a Tesla car for a loaner for a short time, but they'll be given an ICE so they'll still get where they are going.

    If Tesla accomplishes what they set out to do in Q3, the SP will rise, Tesla will get their round of financing for Model 3 and whatever else. All good for shareholders.

    Capital markets don't need to be 'surprised'. In fact we might argue they don't like to be 'surprised'. And any intelligent capital market already knows that Tesla is profitable and can be CF positive simply by slowing growth.

    Nah, discounts weren't 'everywhere'. A lot of the inventory pushed out were old fascia/old leases/CPU/floor model/loaner cars. Tesla can now refill their inventory with the latest and greatest for their showrooms and stores. SOME potential buyers MAY wait for EOQ discounts. Others will be quite satisfied to custom order their cars as has been the case for the last 4 years. As well, it's always a good thing to have more people out there driving Teslas for that free advertising and education of the public.

    It suggests no such thing, unless you're on the 'demand is an issue train' and the 'Tesla is losing thousands of dollars per car train'. Tesla had to deliver 50k in the second half of the year to meet their guidance. It doesn't matter how that 50k is split. 23.4% vs 25% margins at this stage of the game is a non-issue especially if they hit CF positive.

    Or not. Tesla has to increase production and deliveries regardless of what time of year or quarter it is. Next year they want to pump out even more cars. They'd best figure out how to do that and maintain quality or the Model 3 is doomed. Let's just call these pushes trial runs and an opportunity to see where their strengths and weaknesses lie, make adjustments and move on.

    Or not. See above.

    BECAUSE............it gets Tesla the financing they require to put Model 3 on the ground. That's what this is all about or have we forgotten he gist of the leaked e-mail?

    Rethinking a business doesn't mean you have to do absolutely everything different, every second of the day. Sometimes old school works just fine. Q3 has a very specific purpose: read the e-mail again.

    Much ado about nothing. And watch how happy shareholders are if Tesla hits CF positive and GAAP profitable, then go out and get their round of financing to secure Model 3. ;)
     
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  15. habanero69

    habanero69 I Dont Need Cialis. I Drive an EV.

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    I would fear rushed, accelerated production pushes = lower quality product. Seems like there are enough QC issues from reading on here and my personal experience, that they might want to focus on that before rolling out a potentially larger batch of misfits.
     
  16. Krugerrand

    Krugerrand Active Member

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    Tesla has always focused on that. Several times they've announced/stated/printed/said that they slowed production down during a period of time to focus on quality, bottlenecks and the like before increasing production. The CEO even said he camped out at the end of the production line.

    There's been an obvious and significant decrease of quality complaints on this forum. One should also note that some people will complain about the tiniest thing that is otherwise a non-issue for most others.

    And just what do you think the 'accelerated' production rate became? They already announced they were averaging 2000 vehicles per week. Do you suddenly think they're doing 4000? They said they were going to increase production and deliveries by back loading the second half of this year to reach their guidance, so this 'push' was already accounted for.
     
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  17. N5329K

    N5329K Member

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    I hold a Model 3 reservation, and received a call from the local store asking me if I was really, really sure I wanted a 3 when I could pick up an S this month. They offered me a 75 downrated to 60 in my color (exterior and interior) of choice, with all the bells and whistles (leather, a/p, etc etc) for just a 30% premium over what I expect to spend on the Model 3 in the summer of 2018, with very advantageous terms.
    I was sure the Model S was too big to comfortably share my garage with the other cars (all family cars live in the garage...it's the law), and the "calculated fuel savings" estimate Tesla (mistakenly) includes in the final price bears no resemblance to my reality, but I have to admit I was (and still am) tempted.
    If it worked on me it must be working on a whole bunch of people.
    Robin
     
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  18. tander

    tander Member

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    If Tesla was still a private co then this would probably not be too good. But since they are public and have to think more about investor sentiment and and raising capital etc., and since "the market" tends to reward short-term achievement rather than good long-term management, it's overall pretty good to remind the market every once in a while that oh yeah, Tesla could actually be a profitable company if they didn't invest so much into growth.
     
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  19. tander

    tander Member

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    If you don't mind me asking what price did they offer you?
     
  20. ItsNotAboutTheMoney

    ItsNotAboutTheMoney Active Member

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    Tesla wants to show potential investors that it can make it to Model 3 without needing lots of injections of capital. The Q3 push is an attempt to show that it can control cashflow.
     
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