Long-Term Fundamentals of Tesla Motors (TSLA)

[tander]

No they don't. Didn't they just state on the last ER that the reveal of the Model 3 INCREASED interest in the Model S? I'm pretty sure they did.

It seems like people forget that the model s is pretty much the best car in it's class, and it's fair to expect the model 3 to be as well. So unless there is a major economic meltdown and car sales start going down on a national or international level, or gas prices go to .01 a gallon, demand is really not something to worry about. These are products that basically need no advertising after all.

 

[colettimj]

No they don't. Didn't they just state on the last ER that the reveal of the Model 3 INCREASED interest in the Model S? I'm pretty sure they did.

From the transcript,
"Elon Reeve Musk - Chairman & Chief Executive Officer

Yeah, actually – one point worth mentioning is that we're fairly worried about what would happen with the Model 3 announcement. Would it cause some big drop in, say, Model S sales? It seems to have had the opposite effect. It seems as though S demand has increased. It has...

Jason Wheeler - Chief Financial Officer

It has increased.

Elon Reeve Musk - Chairman & Chief Executive Officer

It has increased.

Jason Wheeler - Chief Financial Officer

Yeah. I think you saw the estimated number in the first quarter is 45% up year-over-year and that demand continues."

 

[Fallenone]

I think that Tesla expects the model 3 to cannibalize a lot of model S sales. It is ironic that the Model S is compared to Mercedes S class when it seems that very few buyers went from top of the line Mercedes and BWM to Tesla cars.

Tesla best chance for highest growth is the next five years. I think that they won't hold back features on the model 3 to improve S/X sales. If this is true, the only differentiators are the S/X having more space and range.

Perhaps one reason Musk keeps thanking S/X owners for their contribution towards the model 3 is that he is worried about them being pissed off about the relative value of their cars to the model 3.

But if Tesla can't get more than a 250 mile range in an upgraded model 3, the product line will still be well differentiated. Model S/X margins will continue to improve with dropping battery prices and sharing some costs with the model 3 line. I think the Germans and the Japanese will need to pivot and go after the model 3 as soon as they get their first S/X competitors launched.

If it is the 60k+ fully optioned Mode 3 taking away the 71.5k base Model S sales, that would be great. As options are where the most profits are made.

 

[EinSV]

From the transcript,
"Elon Reeve Musk - Chairman & Chief Executive Officer

Yeah, actually – one point worth mentioning is that we're fairly worried about what would happen with the Model 3 announcement. Would it cause some big drop in, say, Model S sales? It seems to have had the opposite effect. It seems as though S demand has increased. It has...

Jason Wheeler - Chief Financial Officer

It has increased.

Elon Reeve Musk - Chairman & Chief Executive Officer

It has increased.

Jason Wheeler - Chief Financial Officer

Yeah. I think you saw the estimated number in the first quarter is 45% up year-over-year and that demand continues."

A small point but maybe worth mentioning is that the transcript is a little off -- it should read:

Yeah, actually – an important point worth mentioning is that we were fairly worried about what would happen with the Model 3 announcement. Would it cause some big drop in, say, Model S sales? It seems to have had the opposite effect. It seems as though S demand has increased. It has...

The relevant bit starts at 51:02 of the earnings call. http://edge.media-server.com/m/p/c67hnavs

 

[electracity]

Yeah, actually – an important point worth mentioning is that we were fairly worried about what would happen with the Model 3 announcement. Would it cause some big drop in, say, Model S sales? It seems to have had the opposite effect. It seems as though S demand has increased. It has...

Finally, an upside to Tesla's tardy car releases. "It will take Tesla years to release the model 3, I'll just buy the model S"

 

[Krugerrand]

Announcing the model 3 increased interest in the model S. There is no way that the many model S buyers who traded a mainstream car would have chosen the S over an model 3 if both are generally available.

Tesla is going to compete with itself. Advice to follow this approach as a business strategy is often given, but few CEO's are brave enough actually implement such a plan.

Oh, stop it now. Accept that you're wrong on the topic and move on to putting a negative twist on something else instead of trying to move the goalposts. It's getting really tiresome and you'd think the dislikes you get from thread to thread on all sorts of Tesla topics would clue you in; we're not buying the garbage you're peddling.

 

[wdolson]

The revenue per car is not declining to this level. In fact it likely went up in Q1 due to Model X. You need to use the non-GAAP numbers for revenue as the GAAP numbers do not allow the full revenue on a sale due to the residual guarantee and lease accounting. This is why Tesla gives non-GAAP numbers and I understand in 2017 the accounting rules change to allow this revenue with GAAP. Also, the % of leases have been increasing.

4th QTR - 2015 = $1,742,024/ 17.5 = $99.5K per Car
1st QTR - 2016 = $1,601,727/ 14.8 = $108.0K per Car

This is just a rough number as there is some services revenue, Tesla energy, etc that should be backed out of the revenue number.

Also, cars in transit will not effect this calculation. They are considered inventory and Tesla cannot recognize in the revenue number above. The are not counted as deliveries as well.

Dang, I forgot that in my calculations. Makes sense now!

I've been thinking that once the Model 3 is out in volume Tesla may move the S and X further upmarket to better differentiate them from the Model 3. This should lead to higher ASPs for them.

Actually I would think they should move them down market. The price difference between the Model 3 and the S/X is already larger than the spread for any other car maker. For most of the cars I was looking at before Tesla, the spread from their compact sedan to their full sized sedan was less than $20K. I didn't look at premium brands like BMW where it might be a bit more, but I don't think anyone has a spread like Tesla does.

The S would be about $80K fully optioned if it was a Lincoln or Cadillac. They would have to add an awful lot of stuff in the cabin to be as cushy as a BMW or Mercedes. The price of used Model Ss will likely drop when the Model 3 is introduced. People who are looking at used 70s today will be going for the Model 3. For most people, the size of the Model S is kind of a turnoff. In the US there are places where a large car is difficult to maneuver, but it's even worse in Europe. There are some people who like a big car, but they are rare. Most people who want a big vehicle are buying trucks.

Between the cheaper batteries when the GF is in production and possible cost savings from sourcing materials in larger quantities (the 3 and the S/X won't share many body parts, but they will share small components like motor parts, battery pack parts, etc.), Tesla could afford to drop the prices on the S/X and still make as much money. That's probably the only way they keep selling as many of them as they do. If they go up market they end up under utilizing two production lines to build two cars that will be selling in smaller numbers.

It would tick off existing customers that the cars are cheaper, but whining here on the Forum when Tesla does something is common.

 

[electracity]

The model 3 looks to have a HUD that will show autopilot information, a fancy-pants steering wheel with a lot of buttons, and the 15 inch touch screen they have shown.

Is the S/X going to go all space ship like the model 3, or stay closer to the current design?

A year ago I would have said that the model 3 would offer a subset of S/X technology and options. Now I am not so sure.

 

[kenliles]

The model 3 looks to have a HUD that will show autopilot information, a fancy-pants steering wheel with a lot of buttons, and the 15 inch touch screen they have shown.

Is the S/X going to go all space ship like the model 3, or stay closer to the current design?

A year ago I would have said that the model 3 would offer a subset of S/X technology and options. Now I am not so sure.

Maybe SX goes Dragon

 

[JRP3]

I didn't look at premium brands like BMW where it might be a bit more, but I don't think anyone has a spread like Tesla does.

BMW 3 series starts at $33K, the 7 series starts at $81K Build Your Own BMW - BMW North America

 

[hcsharp]

Oh, stop it now. Accept that you're wrong on the topic and move on to putting a negative twist on something else instead of trying to move the goalposts. It's getting really tiresome and you'd think the dislikes you get from thread to thread on all sorts of Tesla topics would clue you in; we're not buying the garbage you're peddling.

All opinions are welcome on TMC. Especially in a thread like this where the bulls outnumber the bears.

It's obvious that Model 3 will cannibalize a few Model S sales. That doesn't mean there's a demand problem. Model S sales will probably continue to increase as the company and general knowledge of EVs continues to improve. That's one of the reasons Model 3 reveal contributed to more S/X sales. You can't deny the fact that a lot of people bought Model S because it was the only compelling EV on the market. Many of those buyers would have preferred something different such as a smaller or less expensive car like the 3, but there wasn't one available, and still isn't.

There is no demand problem and there never has been. Tesla's biggest headwind, by far, is being able to ramp up fast enough. It's extremely difficult to hire staff and grow infrastructure at 30 - 60% a year, every year for 15 consecutive years (to 2020 and beyond). Whether or not there's any S/X cannibalization is irrelevant. It won't change the overall exponential growth curve. Tesla's biggest problem is not demand. It never has been and won't be for at least several years. Their biggest problem is growing pains.

 

[Krugerrand]

All opinions are welcome on TMC. Especially in a thread like this where the bulls outnumber the bears.

Let me correct your implication of me. I welcome opposing opinions regardless of a bull vs bear ratio. What I object to is someone who is clearly and purposely twisting information from thread to thread, and I don't care which side of the fence they stand on. I seek the truth, not opinions for the sake of opinions.

 

[electracity]

Tesla did not build only 50K vehicles last year due to lack of production capability. They built only 50K vehicles last year due to limited demand for the model S. If Q1 2015 had been strong they could have ramped up to 60-70K MS for 2015.

I have three Tesla showrooms within 20 miles of my home because Tesla is spending money to stimulate demand.

One of the reasons Tesla is surging Model 3 production is the concern that they may have killed model S demand growth, especially next year. This situation will likely become more obvious at the second model 3 reveal. The model 3 is likely more fabulous for the typical Tesla tech buyer compared to the current S/X.

Tesla is likely not positioning the model 3 as a typical car company would position a mid-level product. This apparent strategy looks great long term to me, but could produce some quarterly ugliness.

The way to counter the interest shift to the model 3 would be to release an upgraded dash/UI for the S/X. That may have been the ideal plan, but Tesla may not have the capacity for that change in the next 12 months.

 

[JRP3]

It's obvious that Model 3 will cannibalize a few Model S sales. That doesn't mean there's a demand problem. Model S sales will probably continue to increase as the company and general knowledge of EVs continues to improve. That's one of the reasons Model 3 reveal contributed to more S/X sales.

Anyone see a problem there?

 

[electracity]

Anyone see a problem there?

No. Demand is often about trends in opposition. Sales of a particular product is always the net of favorable and unfavorable forces.

 

[JRP3]

Tesla did not build only 50K vehicles last year due to lack of production capability. They built only 50K vehicles last year due to limited demand for the model S.

Nonsense.

The model 3 is likely more fabulous for the typical Tesla tech buyer compared to the current S/X.

There is no typical "Tesla tech buyer". It's well known that Tesla buyers come from many different segments, from environmentally conscious Prius owners to luxury performance oriented Mercedes owners, and every possible combination thereof. We are still in the "innovator" phase of the adoption curve for EV's, demand is only going to go up for all Tesla vehicles.

 

[Krugerrand]

Anyone see a problem there?

The use of the word cannibalize was overly dramatic, we could argue hyperbole, when considered in the context of the poster trying to minimize the message - a (reduction of a) FEW model S sales.

No doubt the reveal of the Model 3 did or will pull a group of people from a Model S purchase. It's already been discussed at length who might fall in that category of people. At the same time the reveal of the Model 3 did or will push another, different group of people to purchase a Model S.

The net result to date is an increase in Model S interest/demand/purchases, not cannibalization of said model. (That's not directed at you. I know you know what's going on. But some of us here are having a real hard time grasping reality.)

 

[Crowded Mind]

One of the reasons Tesla is surging Model 3 production is the concern that they may have killed model S demand growth, especially next year.

Perhaps you would face less vehement opposition if you labeled your opinions as such, rather than stating them as facts.

 

[Krugerrand]

Perhaps you would face less vehement opposition if you labeled your opinions as such, rather than stating them as facts.

He could also just avoid posting an opinion that is in clear contradiction of what's been publically stated by the company. That would probably help immensely.

 

[electracity]

..


There is no typical "Tesla tech buyer". It's well known that Tesla buyers come from many different segments, from environmentally conscious Prius owners to luxury performance oriented Mercedes owners, and every possible combination thereof. We are still in the "innovator" phase of the adoption curve for EV's, demand is only going to go up for all Tesla vehicles.

Maybe. But the last EC shows that real Tesla is not sure what the Model 3 does to Model S sales. You and cartoon Tesla are certain about demand.

All car fan sites have proponents that have certainty about their preferred cars and car companies. I prefer examining probabilities when discussing real companies.