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Long-Term Fundamentals of Tesla Motors (TSLA)
- Thread starter Robert.Boston
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- elon is an ass investing TSLA
This would be significant if verified. My recollection is Elon Musk said 2017 as recently as Q2 earnings, but my recollection could be faulty.
StapleGun
Member
You're right it would be significant, although my understanding is that it has always been expected to "begin production in 2016". 2016 would likely be very low numbers similar to 2012 for the Model S.
I always saw it like this: It is a company's own choice how much in invests in itself. R&D, infrastructure for factories, showrooms, SC network: they could just as well decide to invest 50% less in these and leave much more profit for the books. So for me, until their underlying business is profitable, i.e. they sell the cars for more than it costs them to build, it comes down to how much i believe in the compan's leaders and strategy, how much investment in the future am I willing to accept?
With Tesla, we all know what the answer to that question is, but it is not just blind faith. Elon (& his team!) have demonstrated time and time again (think SpaceX too) that they know what they are doing. Hence, i don't feel like any of the money they spend on e.g. R&D is thrown out the window. (A counter example would be BlackBerry...)
smorgasbord
Active Member
I believe in Tesla's future. I believe Tesla will add true luxury to future Model S - such as night vision, heads-up display, multiple cameras, self-parking, collision avoidance, power folding side mirrors, better seats, dark headliner, etc. I also believe Tesla will introduce a 200 mile 3-series form-factor sedan for under $35K (Model E).
With a relatively basic 208-mile Model S costing $75K-$80K today and a moderate 200-mile Model E in 3 years costing, say $40K, I don't see how there will be enough demand for used Model-S to keep prices high. Yes, if you need the extra room, Model S would be your choice, but with the 208 mile range reduced from time/use, wear and tear on the exterior and interior, I think many would choose a new Model E over a used Model S. Now, perhaps a used Performance model, but even there, chances are there will be a performance Model E, and with it's lighter weight, better aerodynamics (less frontal area), and newer battery technology it might be a compelling choice versus a used Model S Performance. 3 year old S8s run at about 35%-40% of new prices. You might say that used electrics don't suffer the drivetrain wear that used ICE cars have, but there is battery life to be factored in.
Anyway, my point is that, ironically, the more you believe the Tesla's future, the less you believe that current cars will be worth more than 50% of their current prices because in 3 years time, then current new cars at roughly equivalent prices will be such great values comparatively.
marvinat0rz
Member
Mario Kadastik
Active Member
I think they will retain their retail value. Firstly the mixture is skewed towards the performance models and while I agree it's the lower cost models that are more likely to be used in collaboration with Tesla financing (as it's people who are already stretching their finances) the Model S is and will be the flagship. I seriously doubt that at about an equal price the lower cost Model E with far fewer options etc even brand new would necessarily be a stringent competitor to the MS that is 3-years old. The car itself will not deprecate mechanically that much and the battery capacity after three years should still be 95+% of the original or basically negligible reduction. The MS will look the cooler model and appeal to people, getting it at a discount of ~40-45% from list price would indeed most likely sell it out while giving Tesla a nice 15+% margin on it for the second sale.
It's basically the question weather at the same price point a Mercedes E-class (or C-class) new car would fully cannibalize a 3-year old S-class car after sale value. If the price is about the same I think a lot of people would take the used S-class because of the added luxury and status it brings as well as the fact that after 3-years of use most of the initial kinks have been ironed out of the car and Tesla does give an 8 year warranty, which easily covers the 3 years + 5 more (typical financing period at least around here is 4-5 years) meaning that the buyer will enjoy the full warranty benefits and car benefits of a higher income bracket car at a lower cost point.
Also I think the percentage of cars that get returned to Tesla for the guaranteed value is going to be extremely small. In fact the bigger the return rate the higher the cash flow for Tesla. I'm fairly certain they'll be able to sell 95% of all returns within a month (doing a bit of touching up, refreshing the software, going over service bulletins etc all under warranty anyway) at a 5+% premium. Most likely people returning the cars would be buying a new MS or an MX or a new Gen-III car. This effectively means double sales. For me this financing plan was genius and will not be a burden, but a possible extra income line.
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Also, 2013 + 3 years is 2016. That's before the Gen-III launch. The competition would be the MS and the MX (with a very small minority opting for a different automaker). Tesla is effectively baking the cake and eating it too by getting part of the after-market pie. Consider how the loaners fly off the tesla shops and they have trouble keeping up with restocking them. If Tesla is still production limited in 2016 (likely), then those discounted MS-s will fly off the service center parking lots faster than the loaners. Once the Gen-III is in full production and not production constrained with months to wait, then we can start to think about the points I highlighted above, which still bring this as a general positive to Tesla
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And a further update. This financing program right now is only offered in US. While Tesla might have right now mostly US production it will be a minority in the global production in 2016. EU will take at least as many MS-s as US and Asia might far outpace all of the rest. For EU 2013 is like 2012 was for US. Don't expect that few shipments next year
And 2014 will be the starting year for Asia so 2016 all markets should already be ramped up to tens of thousands of cars a year.
JRP3
Hyperactive Member
Also worth noting that the 50% price only applies to the base model 60, any options above that are priced at 43%. I guess you need to ask how many people looking at similar used cars instead choose a smaller, down market version of a new car instead. Do people shopping for a used 5 series instead buy a new 3?
smorgasbord
Active Member
It's well-known, in the US at least, that used luxury boats like BMW 750, Audi A8, etc. are bargains. I believe Model S will fall into that camp. These cars are often purchased for their status. They're often on 3 year leases, they get turned in so that the owner get get the now latest model. A 5 year old luxury car doesn't have the same prestige as a new one. Many Model S owners will continually upgrade to get the latest and greatest, not to mention preserving the prestige. Many will want the latest Tesla has to offer and they'll get the new Model S, but others may not really want the big boat that the Model S is. It's not just price that sells medium size cars, it's the ease of parking and driving on narrow roads. Besides, Model S's conservative appearance will look old (it actually already does to my eye) compared to the expected more modern and cutting edge Model E styling.
By 2016, Model S won't be production constrained (not because demand will decrease, but because production will have ramped up), and Model E will be getting hyped like crazy. People thinking about used Model S's will be tempted to wait and see what Model E will be. When is Tesla scheduled to end the 3 year lease buy-back program?
As for wear, a 3-year old air suspension, sunroof and rear hatch lift are all suspect in my book. Tesla thinks so, too, as they don't provide an extended warranty for the air suspension (it's excluded). And, we've already seen the pillar wear threads, seats already look saggy, and cars just, well get bumped, dinged, and interiors have ice cream spills, child vomit, etc. A lot happens in a few years.
Right now I believe a fair number of people are buying Model S who wouldn't otherwise be buying: a big luxury performance car. When Tesla's electric drivetrain is available in a smaller and cheaper Model E, and with better battery technology than the 3 year-old Model S's, those Model S's ain't gonna fetch sky-high prices.
I don't know if this is going to be a liability for Tesla or not. It could be that Tesla's tight timeline will mean the impact will be small.
By 2016, Model S won't be production constrained (not because demand will decrease, but because production will have ramped up), and Model E will be getting hyped like crazy. People thinking about used Model S's will be tempted to wait and see what Model E will be. When is Tesla scheduled to end the 3 year lease buy-back program?
As for wear, a 3-year old air suspension, sunroof and rear hatch lift are all suspect in my book. Tesla thinks so, too, as they don't provide an extended warranty for the air suspension (it's excluded). And, we've already seen the pillar wear threads, seats already look saggy, and cars just, well get bumped, dinged, and interiors have ice cream spills, child vomit, etc. A lot happens in a few years.
Right now I believe a fair number of people are buying Model S who wouldn't otherwise be buying: a big luxury performance car. When Tesla's electric drivetrain is available in a smaller and cheaper Model E, and with better battery technology than the 3 year-old Model S's, those Model S's ain't gonna fetch sky-high prices.
I don't know if this is going to be a liability for Tesla or not. It could be that Tesla's tight timeline will mean the impact will be small.
Mario Kadastik
Active Member
I think there are a lot of people out there who want the MS, but can't afford a $80+k car. They will happily get the MS at a 40% discount in three years. The touch up of the vehicle isn't going to cost Tesla tens of thousands. Majority will most likely be just fine needing only an interior and exterior thorough cleaning and it's good to go. Those minority that might require some spares will still be offset by others not requiring it. And I'm a bit surprised to hear the MS looking conservative and old. It's an extremely good looking car borrowing lines from Maserati and Aston Martin. Lines that are decades old and still sell extremely well, I see no reason they wouldn't also sell extremely well in the next 10+ years.
You have to remember that the possible clientele increases as a power law once you get past the early adopter price levels. It's not a linear relation. Therefore a car 40% cheaper than the brand new one, but with some years on it will become accessible to a large chunk of people that just cannot go for the newer MS. I'm going to assume that by 2016 once the cars start to come back the Gen-III (why some keep calling it the Model E when that's not sure?) will have at least its design unveiled therefore people won't sit and wait that much. And I think it's going to be somewhat different market segments that compete for the MS and the Gen-III and the used MS will just dip into the extended possible clients pool that is going to be far and big for years to come. If the financing with a guarantee continues for years and years, then at some point in the future this may be something that needs thinking, but at this point in time it does not bode as a risk or liability. Also, by that time we'll have multiple years worth of data on the return resale rates.
You have to remember that the possible clientele increases as a power law once you get past the early adopter price levels. It's not a linear relation. Therefore a car 40% cheaper than the brand new one, but with some years on it will become accessible to a large chunk of people that just cannot go for the newer MS. I'm going to assume that by 2016 once the cars start to come back the Gen-III (why some keep calling it the Model E when that's not sure?) will have at least its design unveiled therefore people won't sit and wait that much. And I think it's going to be somewhat different market segments that compete for the MS and the Gen-III and the used MS will just dip into the extended possible clients pool that is going to be far and big for years to come. If the financing with a guarantee continues for years and years, then at some point in the future this may be something that needs thinking, but at this point in time it does not bode as a risk or liability. Also, by that time we'll have multiple years worth of data on the return resale rates.
JRP3
Hyperactive Member
It will be a 3 year old Model S, and a quick search showed a 2010 BMW 535 at $29K with 45K miles on it compared to when new at $51K
Wear gets deducted from buyback value, so it's not really a factor. You don't get to turn in a beat up S and expect to get the full value. So Tesla gets to deduct $100 for that worn door pillar and replace it for $25, for example.
True, but also in three years time there will be a lot more people who know about the S and want one, and don't want to pay for a new one.
Even if Tesla took a loss on each one turned in, which I doubt, the impact to the bottom line would be small.
I can easily see two scenarios that make me comfortable that 3 year old Model S' have value. One is Tesla offering a new battery pack (100KWH?) as an upgrade swap option. It perhaps having been introduced with the 10 Model Xs they build in 2014, but primarily with big Model X roll-out in spring 2015 - they'd also make it an option then for the 2015 Model S' and then for reconditioned S' that start coming back in summer 2016. So a car that might have sold used with a used pack for under $50K will have the battery capacity of a new Model S for around $75K. I don't think many people will option up to that, really just helps Tesla build the story that these cars are upgradable unlike ICEs.
And I can see a Model E starting at $35,000, but really being 40K+ with basic options, and moving into the 50s and really the 60s before its performance begins to get close to a 2013 standard Model S. So 2013 Model S, that cost say $90K, Tesla buys back for about $40K and sells for under $50K. I see that appealing to enough people that I am not worried at all. And to stay on topic for the thread, it should not have a negative impact on short or long term Tesla earnings.
And I can see a Model E starting at $35,000, but really being 40K+ with basic options, and moving into the 50s and really the 60s before its performance begins to get close to a 2013 standard Model S. So 2013 Model S, that cost say $90K, Tesla buys back for about $40K and sells for under $50K. I see that appealing to enough people that I am not worried at all. And to stay on topic for the thread, it should not have a negative impact on short or long term Tesla earnings.
I would bet against 2016. If at gunpoint, 2017 as well. Elon threw out "within 5 years" or something in a recent Bloomberg interview. First time I had heard 5 years. They haven't done any engineering on the concept yet. It's a waiting game for battery tech and production to shake out. That's the most important thing and really out of Tesla's control. (well they could raise a few billion to solve the battery supply issue, if they wanted, but it still won't get them energy density)
TM hasn't done any engineering on Gen III yet?? Knowing how Elon and JBS are always pushing forward, I don't believe that. I'd bet there is a group of engineers working with Straubel on Gen III and they are fairly far along with vehicle engineering. Gen III will need fewer cells than Model S to have 200 mile range and Panasonic already has the next higher density cell than is used in MS 85 Kwh pack. Pretty certain TM has been cycle testing next cell in packs for past year. Tesla requested changes to the cells Panasonic is making have already cut per KWh costs significantly and those efforts likely continue. I suspect they will do everything they can to have the first production models available by late 2016.
That is necessary if they are to continue to leave GM and others who are only now executing 'hard right rudder' to start changing direction of the supertankers they are steering, eating Tesla's dust. Doubt they want to have a moderately priced EV with double the range of Nissan Leaf on the market for a year before Gen III. Would be bad for the 'Long Term Fundamentals' !
@smorgasbord - You bring up a lot of good points, but there is no way this vehicle depreciates more than 50% after 3 years and 30k-36k miles on it.
Even if it does it will probably be close enough for Tesla to break even, and the numbers will be immaterial anyway.
I would guess that about 25% of vehicles are classified as lease, and if half the people give their car back that is about 12.5% of 2013 sales or about 1,000 cars. In 2016 they will build 100,000 cars. Even if they take a $5000 loss on each used vehicle that is still only $5m loss on $10b in revenue.
If this lease program becomes a losing proposition on a larger scale then Tesla will have plenty of opportunities to modify it before it has a material impact.
Even if it does it will probably be close enough for Tesla to break even, and the numbers will be immaterial anyway.
I would guess that about 25% of vehicles are classified as lease, and if half the people give their car back that is about 12.5% of 2013 sales or about 1,000 cars. In 2016 they will build 100,000 cars. Even if they take a $5000 loss on each used vehicle that is still only $5m loss on $10b in revenue.
If this lease program becomes a losing proposition on a larger scale then Tesla will have plenty of opportunities to modify it before it has a material impact.
lolachampcar
Well-Known Member
Someone is going to have to raise that "few billion" ($8B to $10B in my estimate for 1/2M G3/yr) and I suspect Tesla is the only one that can tell the story well enough to raise the money. Either they do it, they limp along at a pace consistent with their vendor's investment in capacity or they go to a major that then funds the process (along with providing the supply chain management for larger scale production).
I'll start thinking about G3 production when I see the foundation being laid.
I'll start thinking about G3 production when I see the foundation being laid.
There is a flaw in your reasoning, which is that a Model E will be better than, or at worst equivalent to, a used Model S. But "better than" is a subjective measure. The S will certainly be bigger and more spacious than the E. It may still have better fittings, more leather, more wood paneling, etc. So people who are finally coming to buy an electric vehicle for $30-40k might still prefer the used S. At least this would make sure some decent market exists, and there will be only about 1/10th as many of them, so the price should remain stable. The Model E will be "different to", but not necessarily "better than", the used Model S.
Has anyone on TMC tried to calculate capital TM will require to produce as many Gen IIIs in current Fremont plan as it's size will support? As they already own Fremont and it should be able to produce 300 - 400K Gen III on top of 80 - 100K MS and MX, won't total capital needed to reach 400K capacity be what they already have on hand for dev costs, plus whatever costs will run for assembly lines and robotic systems for setting up as many production lines as will fill unused space at Fremont? TM picked up lots of line equipment for current Fremont line at bargain used prices. There is no shortage of shuttered auto plants in North America, so I'd expect that will continue as Fremont is expanded for Gen III.
TM did not spend 2 billion in capital filling 1/4 of Fremont. I'm not sure how much they did. If an estimate of that is available, then multiplying it by factor of 3 to 5 should give a good estimate of capital cost to bring Fremont to full production. How do you arrive at 8 - 10 billion estimate?
Possibly $1B for 300M cells/yr. Gen 3 would need significant new manufacturing capacity.
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