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Long-Term Fundamentals of Tesla Motors (TSLA)

Robert.Boston

Model S VIN P01536
Oct 7, 2011
7,844
42
Portland, Maine, USA
Some people in the market are traders, and others are investors. The difference? Time horizon.

Please use this thread to discuss the long-term fundamentals of Tesla Motors, from the POV of an investor.
 

SCW-Greg

Active Member
Jun 13, 2012
1,842
217
Beaverton, OR
I was thinking about this just the other day, and it occurred to me that the battle for long term survival is bigger than, or must include the fitness of/planning by Tesla to change the mindset of public and the industry. I.e. they could be doing everything right, but the headwinds of public acceptance may not yet be in their favor.

The strategy (to me) seems to place urgency of the blue star project perhaps higher than the X.

Investors will be looking at the whole picture, operations, public acceptance/demand, transformation of the industry, and ultimately ROI.

I liken this to Apple and the iPhone. Transformative innovation. We all know where it's taken Apple and the industry now. But what if the iPhone didn't take hold. How that dynamic would have changed the outcome.

The challenge of this thread will be in keeping it on topic - the fundamentals.
 

gg_got_a_tesla

Model S: VIN 65513, Model 3: VIN 1913
Jan 29, 2010
6,534
788
Redwood Shores, CA
The X does have its appeal, specifically to soccer moms and in countries such as Norway but, Greg's right; Tesla has to look at a mid-to-late 2015 launch of Gen 3 to truly reach out to the masses. Announcing a prototype of Gen 3 by this time next year will set the ball rolling for TSLA to do well in the long run. I still don't see Tesla's market cap doing much more than doubling from here in the 2-3 year timeframe.
 

sp4rk

Banned
Apr 25, 2012
1,219
5
Schaumburg, IL
Once Gen III is announced, will it cannibalize sales of S/X? Cause for concern?

Rolly Royce, as an example, never came out with a "cheaper" car.
 

adiggs

Active Member
Supporting Member
Sep 25, 2012
4,988
15,279
Portland, OR
...
The strategy (to me) seems to place urgency of the blue star project perhaps higher than the X.
...

As a Model X reservation holder, I even agree with this comment (*pain*). But there is an assumption here that Tesla can effectively choose between the two, as well as an assumption that their resources are sufficiently limited that they need to focus more on one than the other.

I agree with the latter assumption (that the resources necessitate focus on one or the other).

The first assumption - that either choice can be made and lead to success is the one I have doubts about. As I understand the Gen III project, achieving the sort of price level that will lead to mass market acceptance is primarily driven by the state of battery technology, both in the performance and in the price of the batteries. Do we have any reason to believe that Tesla can profitably build a $30-40k car with a Model S 60kWh like range "soon"?

My belief (no actual data to support) is that Tesla has a deeper insight into what's possible now (that seems reasonable), and what will be possible "soon", and their conclusion is that the mass market car is further away than any of us would like. So the choice isn't Model X or Gen III next - the choice is Model S with no new development for awhile, or Model X to fill out the line while we're all waiting for the battery technology to improve and continue to get cheaper. And then Gen III starts in a few years when the technology and cost structure will support the aspiration.

And thus the original master plan continues - build luxury high performance cars to reach the portions of the market that can afford the expense level that the technology currently requires, and use those as vehicles to fund the later generations, as well as create demand that pushes the technology in the desired direction. With Model X as the next expression.


I will also add that as much as we see Model S as a game changer, I don't think we've seen anything yet. Model X looks like the ultimate no-compromise car for the American consumer to me. Bigger and more spacious even than Model S, ridiculous performance for an SUV (and maybe just ridiculous performance period), AWD. Oh - and better "gas mileage" than anything else on the road that isn't all-electric. Or at least, that's what I see when I look at Model X.

Our car buying public is accustomed to think of SUV / crossovers as tradeoff cars. Get the space, AWD, etc.., but at the expense of what it costs to operate the thing. What if there's effectively no downside? I believe what I see on the road indicates that Americans prefer big cars when given the opportunity, and that opportunity is largely the price of gas. Take that away....

(heh - Looooonnngg TSLA)
 

richkae

VIN587
Jan 15, 2008
1,917
29
I think it is important to remember the fraction of the market Tesla needs to capture ( in the US ) to succeed.

The Model S competes in 3 categories: luxury car: 900K units, mid-size car: 3000K units, crossover: 2700K units per year.
If the Model S captures 1/2 a percentage point from the luxury segment and 1/10th of a point from each of the other two, it is a success ( Tesla has said they only expect half their Model S sales from the U.S. )

The Model X will compete against the crossovers ( 2700K per year ), and large and luxury SUVs ( 310K per year ), and minivans ( 550K per year )
Once again, they only need about 3/10th of a percentage point from that whole mess to be a success ( I assume that Tesla wants to sell 10000 Model Xs in the US per year )

Overall Tesla needs to achieve about 2/10 a percentage point market share to succeed with the Model S and Model X.

When it comes time for the Gen 3 variants, if they want to sell 100,000 vehicles per year in the US that is about 1% of the market ( excludes pickup trucks )

Auto Sales - Markets Data Center - WSJ.com
 

ToddRLockwood

Active Member
Sep 11, 2012
1,317
82
Burlington, Vermont
The Model X has one major advantage for Tesla: it shares the Model S drive platform. This greatly reduces the cost of bringing the Model X to market. Gen III will be largely a new vehicle from the ground up, and with the intended price reduction it will have to be.
 

jcstp

Active Member
Feb 7, 2011
1,627
1
Belgium
The Model X has one major advantage for Tesla: it shares the Model S drive platform. This greatly reduces the cost of bringing the Model X to market. Gen III will be largely a new vehicle from the ground up, and with the intended price reduction it will have to be.

My vieuw as wel!

Using the model s platform in several car-designs for covering multiple "needs" will ask less R&D than designing a new platform!
All the big carcompanys do this
Even for supercars they do this (lamborghini gallardo = audi r8)
porsche panamera shares a lot with the cayenne I remember reading somewhere
 

slavi

Member
Jan 16, 2012
33
0
Once Gen III is announced, will it cannibalize sales of S/X? Cause for concern?

I would think so to a point. The problem is, making an audi R8 all-aluminum alloy 40-valve V10 engine is far more expensive than making the typical run of the mill engine in a sub $30k sedan.

With electric cars, if you have the batteries to go 200 miles (Gen III), the difference between that car doing 0-60 in 10 seconds or 5 seconds is just bigger MOSFETs (and maybe improved motor cooling). So differentiating between an A4 and an R8 would be more difficult.

Either way, selling a million Gen III cars per year is still a lot more money than 50k Model S's so I'm not too worried. The next roadster will also cannabilize some model S sales as well but you should never be afraid of that. Either way, you're expanding your market.
 

Alpha

Member
Dec 4, 2012
406
0
Earth
Here are some not wildly unreasonable hypothetical conditions that could make the gen3 incredibly successful.

1. Gen 3 should be a bit smaller and lighter, and thus get more range out of a smaller battery.
2. Production process would presumably be quite perfected by 2015, and so could operate more efficiently (being able to produce cars at a lower cost.)
3. Quantities of scale kick in. Suppliers can thus lower their prices and that is passed on, including the battery pack.
4. Many more superchargers in place by then, probably at higher charge rate as well! Still free!
5. Wouldn't be surprised to see an increase in the EV tax credit at some point - wasn't too long ago that Obama proposed increasing it to 10K and have it pay out at sale time instead of tax time - even that would have done wonders. Imagine a 15K tax credit - that would turn a 50K vehicle into a 35K vehicle!
6. More frequent storms like Sandy keep pummeling us and we start to see a dramatic shift in public opinion on climate change A desperate "We've got to do something! Anything!" chorus starts building. That's the key to a change in politics that could lead to more subsidies for EV and clean energy and less subsidies for oil, coal and gas.
 

Objective1

Member
Dec 29, 2012
111
9
Albany, NY, USA
Don't count on the EV credit. We will have to see where production battery tech is at maybe in early 2014 to know if an affordable Gen 3 can really happen. It may be like the $50,000 Model S: not the real value proposition, and unavailable up to a year after the car originally goes into production.
 

dmckinstry

Model X 2019
Jul 9, 2011
1,428
1,873
Medical Lake, WA (near Spokane)
My own thought is that Gen III does have to wait until battery prices come down, even with overall efficiency in production reducing costs. I believe that Tesla has to introduce the X before the Gen III, even though many more would want to buy the Gen III.

P.S. Even though I could afford the Gen III before I could afford the S, I'll still want the S, even if I don't have the money for it until the Gen III comes out.
 

FredTMC

Model S VIN #4925
Dec 26, 2012
3,492
3,792
Orange County CA
Musk: Expecting 30K-40K Model S Demand Per Year: Video - Bloomberg

In interview with Bloomberg, Elon explains thoughts behind expecting a volume of 30,000/year to 40,000/year for the Model S.

(US, Europe, Asia each more than 10,000/year).

Yep. Many people are blown away when introduced to car and drive it (my personal experience). Brand Awareness is still incredibly low. I think i will convience a few people to get it.

Then there's gas prices... Makes for great press. I think by next year (2014), 10k in US is too low. It only takes a small amount of conversions from BMW 5 series and other lux sedans to exceed 10k US.
 

strider

Active Member
Oct 20, 2010
3,627
995
NE Oklahoma
My only worry is the macro economy. We still haven't paid the price for the various asset bubbles we blew around the world last decade and it will come home to roost one day. Europe is still a basket case - absolutely nothing has been "fixed" there, China is headed for a hard landing (which will take the commodity countries like Brazil and Australia, whose housing bubble is popping now, with it), and the US is papering over our contracting economy with deficit spending. When the economy does continue to fall apart gas prices will drop and new car sales in general will drop. That could be a huge problem for Tesla who doesn't have a cash cushion to ride out any downturn.
 

Robert.Boston

Model S VIN P01536
Oct 7, 2011
7,844
42
Portland, Maine, USA
@strider: looking at "the economy" doesn't say very much about the finances of people in the premium sedan market, which is the cornerstone of demand for the Model S. The well-off have continued to do well, for the most part, and still have ample capacity to buy nice cars. Take a look at the stock prices of, e.g. Tiffany ($20 in Jan 2009, $60 today), Coach ($14 to $46), Nordstrom ($14 to $53). More tellingly, look at the performance of luxury car companies in the same 2009-2013 period: BMW's stock price up from 20 to 70, and Audi's roughly doubling. Of course, this has to be put in the context of the overall stock market roughly doubling in that same time period, but clearly luxury goods makers have collectively outperformed the market. Why? Because their customers have also outperformed the market. Here's a good piece by Bain on luxury sales trends.

Overall, I think Tesla has made a wise choice pursuing the premium market for cars (even for Gen III, which is teed up against the BMW 3-series and the Audi A4, not the Nissan Altima).
 

strider

Active Member
Oct 20, 2010
3,627
995
NE Oklahoma
Overall, I think Tesla has made a wise choice pursuing the premium market for cars (even for Gen III, which is teed up against the BMW 3-series and the Audi A4, not the Nissan Altima).
I agree. I think Tesla is absolutely following the right model which is why I don't see that as a risk factor for the long-term. For model S there is no "EV Premium" as it is price competitive w/ it's ICE peers - makes perfect sense.

But in terms of long-term risk factors, you're extending the current environment into the future. In this current faux recovery the top income segments have done very well and that's being reflected in the companies you list. But these people are very sensitive to the stock market. Since the Fed has been hosing the market w/ free money the market has kept rising but it has to stop. The cracks are showing w/ many companies missing or barely meeting earnings and offering lower guidance. If we see the DOW at 6,000 (which is quite likely in my view) the "wealth effect" from this will hit high earners and will impact all of the "luxury goods" manufacturers including Tesla.
 

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