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.
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Logic behind putting the higher margin deliveries upfront.
- Thread starter wrf2e
- Start date
You sell the high priced cars first to fund your R&D and tooling for the cheap models. Once the production lines are setup to do 5k models per week then then they can sell in volume instead of higher $$ and make the same money.
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.
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.
Fusion
Member
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.
Akikiki
A'-Lo-HA ! y'all
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
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
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.
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
Last edited:
david_42
Member
As a shareholder, I approve. As someone who has watched the SD model drift further and further away in time, not so much.
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