Long-Term Fundamentals of Tesla Motors (TSLA)

[dalalsid]

I hear that. But if you presume they will need to work on demand at some point in the next 3 years, which I think is a reasonable assumption, do they dare wait until the very week they NEED to work on demand? Is that not too late? That is why start slow with an introduction campaign.

You can head off the "Tesla is desperate" story line by just laying out the strategy ahead of time. Say they want to gradually work on the campaign, so they are doing the prudent thing and feathering in to build brand awareness.

Imminent Model 3 volume production is when IMHO they should start if they don't have sufficient deposits anyway to sell out for the foreseeable future already. They can then rely on the laurels of the Model S/X to promote their high volume car.

 

[Perfectlogic]

I hear that. But if you presume they will need to work on demand at some point in the next 3 years, which I think is a reasonable assumption, do they dare wait until the very week they NEED to work on demand? Is that not too late? That is why start slow with an introduction campaign.

You can head off the "Tesla is desperate" story line by just laying out the strategy ahead of time. Say they want to gradually work on the campaign, so they are doing the prudent thing and feathering in to build brand awareness.

I believe Elon talked a bit about advertising in the last earnings call, as I remember it he said that he didn't know when it would make sense to start advertising; maybe this year or maybe next year, or something along those lines. I think it would be great timing to start advertising late this year after the X launch, with the 2k/week capacity soon available to stimulate demand so they can keep expanding production with a reasonable backlog. It's going to be interesting how the market responds when Elon starts talking seriously about advertising, the immediate thought is obviously for it to have a negative effect, but with sufficient hints about what demand it might lead to I think it could actually be pretty positive. The back bone of the bear argument is that Tesla is valued extremely lofty, but if 110k cars can be delivered in 2016, that would be $11-12B in revenue, and mean a P/S ratio of a mere 2.3, that must make Tesla on of the absolute cheapest growth stocks in the market.

 

[Robert.Boston]

I'm reminded here of a great tale:

Thomas Edison invented this great light bulb, but too few homes had power to really let sales go anywhere. What did he do? He built electric utilities: Consolidated Edison of New York, Boston Edison, Commonwealth Edison (Chicago), Southern California Edison, and so on, to sell his light bulbs. At first, he priced the light bulbs to include the cost of all the power they were likely to use in their (somewhat limited) lifetimes. This was a brilliant scheme, inasmuch as the utility didn't have to have meters, people to read meters, or billing & collections departments. But Edison didn't have a monopoly on what devices people could plug into his free utility, so eventually he had to shift to charging for power and bulbs separately.

I'm not sure that this bit of history is indicative of the future for Tesla, but it's worth thinking about.

 

[TSLAopt]

I hear that. But if you presume they will need to work on demand at some point in the next 3 years, which I think is a reasonable assumption, do they dare wait until the very week they NEED to work on demand? Is that not too late? That is why start slow with an introduction campaign.

You can head off the "Tesla is desperate" story line by just laying out the strategy ahead of time. Say they want to gradually work on the campaign, so they are doing the prudent thing and feathering in to build brand awareness.

i agree with just some awareness catalyzing with a very minor and modest ad campaign now...however, I think Elon probably takes a sense of pride in not needing to advertise and is reluctant for that very reason...it would be great if Tesla can get to III and build awareness enough without ads to where they never will need to advertise to catalyze the awareness, but it is an IF and a chance they are taking... The flip side is if Tesla had enough capacity for some period of time to build/sell more cars then they actually do at some point on the way to III and pays a dear opportunity cost of not doing the modest awareness ad campaign now that would have kept them demand constrained all the way up to III

as a prideful investor in TSLA since 2011 a big part of me doesn't want them to advertise and thinks it will be great to get away without needing to pay for formal advertising, but when I set my pride aside I think it would be the prudent thing to do...just to seed more demand for the future and insure them from having to pay the 'opportunity cost' cited above

 

[CHGolferJim]

Mercedes and BMW don't need to do much ordinary advertising for their large premium sedans, and neither does Tesla. SUVs and mid-range sedans are different. I expect more traditional marketing will begin between the X and 3 launches to prepare the 3 market for maximum uptake, accelerate X sales and maintain growth in the S once manufacturing capacity is available.

 

[Perfectlogic]

Mercedes and BMW don't need to do much ordinary advertising for their large premium sedans, and neither does Tesla.

Everyone knows about BMW and Mercedes and considers their lineup, at least to some extent, when buying a new car if its in the price range. Tesla needs to establish brand awareness, I'm sure not even 20% of the population, at least here in Europe, knows about Tesla to the extent of their SC network which ofcourse is very key knowledge as it dealt with what probably is the largest problem people have with BEVs; range anxiety. Well maybe 20% is a bit low, I feel like it must be below 50% of potential (affluent) customers for sure, which obviously means an ad campaign could potentially double sales, imagine that.

 

[jhm]

Who watches TV anymore? Tesla is already very good at delivering advertising content through the Internet at very little cost. I really liked that ad on autopilot tech that came out on the first of this month. The real bomb are viral videos that everyone shares and talks about. Tesla is quite strong on social media.

Once Tesla crosses over to paid media, there are many very focused options. Certainly the internet is central because Tesla's primary sales channel is online. In states like Texas which inhibit Tesla's free speech, it may be a real hoot to put up billboards that read, "Don't tell Texans where they can't buy their Tesla. TeslaMotors.com" Go ahead and let the TADA sue. Another avenue is to push a lot of licensed merchandise. Many people would be proud to wear branded shirts even if they can't afford the car. This is all brand marketing and builds long-term brand loyalty. Finally, product placement in media is very good.

 

[Perfectlogic]

Who watches TV anymore? Tesla is already very good at delivering advertising content through the Internet at very little cost. I really liked that ad on autopilot tech that came out on the first of this month. The real bomb are viral videos that everyone shares and talks about. Tesla is quite strong on social media.

Once Tesla crosses over to paid media, there are many very focused options. Certainly the internet is central because Tesla's primary sales channel is online. In states like Texas which inhibit Tesla's free speech, it may be a real hoot to put up billboards that read, "Don't tell Texans where they can't buy their Tesla. TeslaMotors.com" Go ahead and let the TADA sue. Another avenue is to push a lot of licensed merchandise. Many people would be proud to wear branded shirts even if they can't afford the car. This is all brand marketing and builds long-term brand loyalty. Finally, product placement in media is very good.

A lot of people does. Sure if Tesla can spread the word about their qualities without paying for it I agree that would be the best, but even though they have done an excellent job so far I think there is still a large part who haven't been enlightened about the future of transportation yet, and a TV ad would definately help to quickly get the word out to the nooks and crannies of the population quickly.

 

[Drax7]

Somebody has to educate the public on the merits of the ev and tesla, and education will cost .
It's in teslas interest to do so.

 

[austinEV]

I'm reminded here of a great tale:

Thomas Edison invented this great light bulb, but too few homes had power to really let sales go anywhere. What did he do? He built electric utilities: Consolidated Edison of New York, Boston Edison, Commonwealth Edison (Chicago), Southern California Edison, and so on, to sell his light bulbs. At first, he priced the light bulbs to include the cost of all the power they were likely to use in their (somewhat limited) lifetimes. This was a brilliant scheme, inasmuch as the utility didn't have to have meters, people to read meters, or billing & collections departments. But Edison didn't have a monopoly on what devices people could plug into his free utility, so eventually he had to shift to charging for power and bulbs separately.

I'm not sure that this bit of history is indicative of the future for Tesla, but it's worth thinking about.

I have never loved the "free for life" model. It wouldn't change the value proposition that much if you took out the reserve from the car's price, whatever that is, and just had the car charge you some nominal fee when you charge. It wouldn't have to be any harder, swiping a card or anything, just have a credit card attached to your Tesla account and charge something for your usage. Almost any mechanism you pick would work, like a nominal $.10/kWh flat, rounded down. That for example would probably not fully offset the cost, so it is still a bargain. The cost of road tripping is still very, very low and seldom used anyway. But this nominal charge would eliminate the possibility of unintended consequences down the line. There are scenarios it is not hard to imagine where unlimited for life becomes untenable. Suppose that Model S' really do last for a long, long time. After 15 years and 4 owners a typical car might be going for 20k and be all beat up but still running. Those cars will still be eligible for free supercharging and eventually you can have a situation where every car has taken more than the purchase price put into the system. It works only if the company is growing endlessly. If, heaven forbid, growth slowed and they became a mid-major producer in 2020 with let's pretend flat production, the fleet size would continue to grow endlessly while receipts would not. It is a little like social security, if half of the population lived forever.

 

[WarpedOne]

Math is hard, consequences are obvious.
Free for life is not free at all, it is prepaid and vastly overpaid for mere kWh.

Charging for charging would end SC network before it even got started.

 

[RubberToe]

"It works only if the company is growing endlessly..."

Or if Tesla has free access to power, I.e. generates their own :smile:

RT

 

[Hogfighter]

Whenever they do start an advertising campaign, TSLA should absolutely pre-announce the campaign in a Shareholder Letter. It should explain why they are advertising, what method they will use (Television, Internet, etc.) and the scope of the campaign. This would go a long way in reducing volatility associated with having to guess these things.

 

[austinEV]

Math is hard, consequences are obvious.
Free for life is not free at all, it is prepaid and vastly overpaid for mere kWh.

Charging for charging would end SC network before it even got started.

Ok, here is one unintended consequence. There is a fair amount of chatter that supercharging is being throttled if you are within some circle, say 50 miles of your home. People are reporting a max of 60kW charging. The theory is that Tesla is discouraging people who happen to live close to a SC from making that their routine charging. If so, they seem to recognize the danger in having a few cars that do most of their charging at a SC instead of home. Users are (rightly)complaining that if that is their policy, it is a bad idea since it will just double the time people are parked and hurt availability to travellers. If they were just charging money for charging your car this wouldn't matter. This becomes more of a problem if they try to address urban owners who do not have garages. If the solution to that is urban superchargers in Beijing, Paris, London etc then those users would 100% super charge. How do you reconcile that useage model with the fixed prepaid pricing?

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"It works only if the company is growing endlessly..."

Or if Tesla has free access to power, I.e. generates their own :smile:

RT

They have what, one solar supercharger? Don't look for this to be a priority.

 

[Johan]

Whenever they do start an advertising campaign, TSLA should absolutely pre-announce the campaign in a Shareholder Letter. It should explain why they are advertising, what method they will use (Television, Internet, etc.) and the scope of the campaign. This would go a long way in reducing volatility associated with having to guess these things.

If they play it right the public legal battle against the dealer franchise laws will provide plenty of "free" advertising.

 

[green1]

Ok, here is one unintended consequence. There is a fair amount of chatter that supercharging is being throttled if you are within some circle, say 50 miles of your home. People are reporting a max of 60kW charging. The theory is that Tesla is discouraging people who happen to live close to a SC from making that their routine charging.

From what I can tell, that's a completely unfounded conspiracy theory. Keep in mind that you only get about 60kW at 50% SOC, and if you're close to home, there's a good chance you're not empty.

 

[Robert.Boston]

If they play it right the public legal battle against the dealer franchise laws will provide plenty of "free" advertising.

I'm sure Tesla Legal doesn't view these suits as "free". But at least they can get some PR upside from the legal costs.

 

[ecarfan]

Tesla BEV Competition Developments

Ok, here is one unintended consequence. There is a fair amount of chatter that supercharging is being throttled if you are within some circle, say 50 miles of your home. People are reporting a max of 60kW charging. The theory is that Tesla is discouraging people who happen to live close to a SC from making that their routine charging.

The "throttling" rumor has been convincingly debunked by many reports of people, including me, getting normal charge rates at SCs near them.

 

[Johan]

I'm sure Tesla Legal doesn't view these suits as "free". But at least they can get some PR upside from the legal costs.

Of course it will cost them. But they should make a big, public debacle out of the whole thing to get as much media mentions and airtime as possible. Of course the dealerships will try to spin it as "your poor local friendly car dealer who's looking out for your best interest is going to go out of business" but that won't fly - people in general don't like dealers and common sense dictates that Tesla should have the right to sell directly.

The legal costs will be there no matter what, so might as well play it for all the PR possible.

 

[brianman]

Some automakers may agree with Tesla Motors' assertion that mainstream customers are hesitant to buy EVs with less than around 200 miles of range, however Ghosn claims that scarcity of charging stations, rather than limited battery range, is to blame for range anxiety.

Given his position, I think he's smart enough to know the three are strongly correlated and, as such, he's simply manipulating.

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I have never loved the "free for life" model. It wouldn't change the value proposition that much if you took out the reserve from the car's price, whatever that is, and just had the car charge you some nominal fee when you charge. It wouldn't have to be any harder, swiping a card or anything, just have a credit card attached to your Tesla account and charge something for your usage. Almost any mechanism you pick would work, like a nominal $.10/kWh flat, rounded down. That for example would probably not fully offset the cost, so it is still a bargain.

$2500 option for supercharging

$2500 / (kWh / $0.10) = 25 MWh prepaid

25 MWh * (mi / 300 Wh) = 83,333 miles

So you've prepaid 83,333 miles of supercharging. I'm quite confident that most buyers will not consume that much supercharger juice in 8 years or even for the life of the vehicle.