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Logic behind putting the higher margin deliveries upfront.

wrf2e

Member
Apr 6, 2016
111
59
Fort Worth
I’m no financial expert, but I was curious about the thought process behind pushing the more expensive cars out first. I get that they will make more profit on those vehicles, but what happens when they finish those and get to the base model? Wouldn’t it be smart to spread the delivers out? I assume their is a reasoning behind their plan, so I’m seriously just wanting to know what I’m missing here.
 

goto10

Member
Mar 6, 2018
182
240
Provo, UT
Production is more expensive at the beginning and selling only higher-margin configurations helps offset that. As the production line increases in efficiency then it is easier to more profitably sell lower-margin configurations.
 
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PoitNarf

My dog's breath smells like dog food
Jun 7, 2016
2,867
4,006
NJ
Several reasons:

1) Tesla needs CASH, they're spending like crazy on the production ramp and other projects. They need to start having several quarters that they made a profit as quickly as possible in order to secure their future financial stability. Building the higher margin versions first allows them to maximize their profit in the shortest amount of time.

2) They're still struggling with their production ramp. Keeping the production line complexity as low as possible allows them to ramp up more quickly. They only need to worry about color and wheel choice at the moment (other options are software only).

3) They have plenty of reservation holders (like me) that are willing to purchase the version of the Model 3 that they are building now so no immediate reason for them to start building other configurations at the moment.
 

wrf2e

Member
Apr 6, 2016
111
59
Fort Worth
Production is more expensive at the beginning and selling only higher-margin configurations helps offset that. As the production line increases in efficiency then it is easier to more profitably sell lower-margin configurations.
That is the piece I was missing. Makes perfect sense now.
 

Fusion

Member
Apr 13, 2016
679
486
San Francisco
Also people are more likely to purchase the higher priced cars with the current $7500 tax incentive. If they released all the cheaper cars. It would get gobbled up and the people will less likely choose the higher models due to the incentive being half later.
 

derekmw

Member
Oct 3, 2016
623
892
San Diego, CA
easymoney.gif
 

mrtian97

Member
Oct 17, 2016
298
68
So Cal
And makes business sense with their operation capacity, if they only can make small amt of cars at the beginning, it’s maximizing their revenues with selling higher priced model first
 

BTCTM3

Member
Jan 1, 2018
14
9
LA
Time value of money - in finance you ALWAYS want to recoup money as quickly as possible, which is pretty much the same as selling high margin items first.
 

wrf2e

Member
Apr 6, 2016
111
59
Fort Worth
OP. that's the model they used for the S and the X. Why change if it works?
I'm not suggesting they should change it, I was just missing a piece of the information to understand why it works. I'm all for them doing what is best for the company. Am I disappointed that my place in line is so fluid? I am, but I am a capitalist at heart and understand the need to make sound business decisions. I was just curious about the reasoning behind the decision. I was looking at it from this angle. "I have x number of cars to sell. Some have a higher profit margin than others. Why wouldn't I spread out the sale of the higher margin cars with the smaller margin cars to keep cash flow more steady."
 

Fusion

Member
Apr 13, 2016
679
486
San Francisco
I'm not suggesting they should change it, I was just missing a piece of the information to understand why it works. I'm all for them doing what is best for the company. Am I disappointed that my place in line is so fluid? I am, but I am a capitalist at heart and understand the need to make sound business decisions. I was just curious about the reasoning behind the decision. I was looking at it from this angle. "I have x number of cars to sell. Some have a higher profit margin than others. Why wouldn't I spread out the sale of the higher margin cars with the smaller margin cars to keep cash flow more steady."

As I mentioned... probably due to the tax incentives. Once they hit that 200k sold cars, it's going to be half and they are probably trying to not waste it on the 35k model. That's why year end is the timing for the release of the $35k model while it's projected for the $7500 incentive to run out roughly April-June.
 

wrf2e

Member
Apr 6, 2016
111
59
Fort Worth
As I mentioned... probably due to the tax incentives. Once they hit that 200k sold cars, it's going to be half and they are probably trying to not waste it on the 35k model. That's why year end is the timing for the release of the $35k model while it's projected for the $7500 incentive to run out roughly April-June.

I also get this from a business standpoint. However, their stated goal is to promote the use of sustainable energy, if you let the tax credit apply to the base car, you can now attract people who can't spend $35k on a car but can swing $27,500.
 

Uncle Paul

Well-Known Member
Nov 1, 2013
6,181
6,681
Canyon Lake,CA
Think you have been given the plausable answers.

Attracting more people is not the goal of a company that cannot produce enough to supply all the people they have already attracted.
 

N5329K

Active Member
Aug 12, 2009
1,863
3,598
California
Several reasons:

1) Tesla needs CASH, they're spending like crazy on the production ramp and other projects. They need to start having several quarters that they made a profit as quickly as possible in order to secure their future financial stability. Building the higher margin versions first allows them to maximize their profit in the shortest amount of time.

2) They're still struggling with their production ramp. Keeping the production line complexity as low as possible allows them to ramp up more quickly. They only need to worry about color and wheel choice at the moment (other options are software only).

3) They have plenty of reservation holders (like me) that are willing to purchase the version of the Model 3 that they are building now so no immediate reason for them to start building other configurations at the moment.
Lots of other projects.
Robin

Nobody Knows Why Elon Musk Has Been Hiring Staffers From The Onion
 
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