Osborne Effect

[tonybelding]

So, here's the one thing that worries me now. . . With everyone waiting eagerly for the Model 3, will orders for the Model S and X drop off a cliff? And if that were to happen, how does Tesla survive until the Model 3 is shipping in quantity?

Osborne effect - Wikipedia, the free encyclopedia

 

[ChadS]

Yeah, I've been a bit worried about that. It's why Nissan and Ford have been quiet about their long-range EVs. (GM is loud about the Bolt because they don't care about sales taking on their current PEVs; they are all about brand halo).

In another thread somebody mentioned the possibility that some aspects of the 3 reveal, like the tiny trunk opening (and perhaps the interior design), may have been to avoid this effect and keep people buying S/X because of greater utility. Interesting thought if true. (Though there are other reasons to build a car that way).

Of course, Tesla still has a problem with brand awareness, and the 3 reveal raised that, so new potential customers will start kicking the tires on the S and X. Plus Tesla has some new working capital from the deposits (from most places; deposits from my state must be held in escrow). And of course they are hoping the stock gets a kick, and debt terms will be better given all the reservations. So there are two sides to this.

If they do have trouble, they could always go back to offering a cheaper S60...

 

[SteveG3]

I've been thinking about this some too.

one thing that may mitigate this is the wait... not simply until production begins in late 2017 (at the earliest), but rather the minimum 3.5 year wait to actually receive the car. someone who has not yet put down a reservation, as of now has ~300,000 people ahead of them (and probably ~400,000 before this first week is out). 300K is close to the most cars I could see Tesla building in 2018 and 2019 combined, so order now, get the car ~early 2020.

this 3+ year wait wont be going away any time soon either. I suspect that by the time they deliver the first Model 3 there will be 1.5 million+ reservations... that will probably mean a wait until 2022 (4 years from that first delivery).

a large proportion of people who choose cars in the S and X price range keep their cars for only 3 years anyway.

all that said, if the would be S/X buyers switching to the 3 are well aware of the wait, this is a moot point.

 

[Dithermaster]

I believe "no". Believe me, I was worried about it; the Model 3 is beautiful, and affordable. However, optioned up, it too will be costly. And, the Model 3 does not replace the Model S. The S is larger, can fit more people (or, presumably, cargo). They are more exclusive too. So, in the same way that the BMW 3 Series does not prevent the 5 and 7 Series from selling and the Audio A4 doesn't prevent the A6 and A8 from selling, the Model 3 won't prevent the Model S from selling. Will Model S sales rate drop? Probably; they used to be the only awesome sedan you could buy from Tesla and now there will be two to choose from! But other automakers have far more models and seem to do just fine (in fact most automakers have multiple cars in the same class even that compete with each other). Finally, since you brought up the Osborne Effect: The Osborne 1, while amazing for its time, had big shortcomings, so the news of a next-generation machine would naturally cause orders to be cancelled and sales to drop. There's nothing wrong with the Model S that would make people want it any less. But they do have a choice now of where to spend their money with Tesla. So perhaps Model S sales rates will taper, but not because the car is any less awesome. If anything, it explains the price increase people are talking about and only raises the exclusivity of the Model S.

 

[doug]

There were similar concerns when Tesla first showed the Model X back in 2012, while they hadn't even begun Model S deliveries. That seems to have worked out ok for them.

 

[jerry33]

This is like saying that the 3 Series BMW will kill demand for the 5 and 7 Series. Didn't happen, isn't going to happen. They have different classes of buyers. Now it's true that in the beginning there were a number of S purchasers that would likely have gone for a M3 if both had been available, but those folks have already purchased and the number of new folks like that are limited.

 

[Olle]

This is like saying that the 3 Series BMW will kill demand for the 5 and 7 Series. Didn't happen, isn't going to happen. They have different classes of buyers. Now it's true that in the beginning there were a number of S purchasers that would likely have gone for a M3 if both had been available, but those folks have already purchased and the number of new folks like that are limited.

I met a fair amount of Model S buyers though who are usually not in the $100k market, but love the concept of all electric performance where Model S was the only option. Model 3 might take some of those buyers. The 7 series style buyers that you mention it probably won't take though. They will still buy the S/X

Let's hope that brand awareness will more then compensate for this though and build even more demand for S/X. Have never heard as many people talk about Tesla as these days after the 3 reveal

 

[aesculus]

I think just about the opposite. It might be this way for a few months but then anticipation will get the best of many of them who were on the edge and they will decide to get the car sooner than later. That will force them into the Model S for sure and perhaps the Model X. It will probably also drive up the used Tesla market because a used late Model S will be competitive to a fully loaded Model 3, and a better car IMHO. If the return on used cars get high enough, then some of the 60 and 85 owners might be ready to upgrade, especially if the Model S gets some new features.

 

[DriverOne]

Models 3 and S have little overlap. Who will be affected negatively is the other car maker's Model 3 competitors. Now 250K people have decided to buy a Model 3 and won't be buying an e.g. Audi A4, BMW 3.

 

[adiggs]

AND on the other side of the market, Model 3 will be busy sucking some number of 10-30k car buyers up into the 35k+ range to purchase a Model 3; much as the Model S pulled lower priced car buyers up into the 100k market.

Great for Model 3 sales and great for Tesla overall.

We will finally start to get a read on actual market demand for Model S / X once Model 3 is shipping in volume, and some early hints in '17 as Model 3 shipping gets close. Until then, we're looking at a market that is too badly distorted by being, effectively, a market with a single car in it to satisfy demand.

One luxury sedan (and now luxury SUV/crossover) to satisfy the entire market that is otherwise satisfied by 00's of different sizes and shapes of gas cars is warping consumers preferences (if you start off by wanting a fully functional EV, then you have very little choice today). As the number of choices grows, then the more natural and long term / sustained demand for the cars in each segment can be known. So we won't know the real and sustained Model 3 demand until a lower priced, full function EV, is available in the market (whether it's Tesla's or somebody else's).

 

[RobStark]

In another thread somebody mentioned the possibility that some aspects of the 3 reveal, like the tiny trunk opening (and perhaps the interior design), may have been to avoid this effect and keep people buying S/X because of greater utility. Interesting thought if true. (Though there are other reasons to build a car that way).

From Elon's Twitter Feed:

Q: "Why small trunk lid instead of big hatchback like S&X? I ride a bike not a surfboard

"
A: " Only way to get enough rear passenger headroom was to move the rear roof cross-car support beam. A bike will still fit no problem."

 

[AlexT]

... I suspect that by the time they deliver the first Model 3 there will be 1.5 million+ reservations... that will probably mean a wait until 2022 (4 years from that first delivery).

More reservations will allow ramping up more parallel production lines. This could in theory actually speed up delivery!
Once the development is done, # reservations help determine how many production lines can be opened simultaneously. And the deposits help pay for them. So as far as I'm concerned, order more please!

 

[SteveG3]

More reservations will allow ramping up more parallel production lines. This could in theory actually speed up delivery!
Once the development is done, # reservations help determine how many production lines can be opened simultaneously. And the deposits help pay for them. So as far as I'm concerned, order more please!

clearly Tesla's issue is not demand. it seems now it wont be capital either. I think it's just the complexity of building the amount of vehicle and crazy large battery factories, and training the number of workers it would take to grow as fast as they can. wish it weren't so, but I don't see them getting to 1.5 million units per year until something like 2023.

 

[wdolson]

I for one am still in the market for an S. I'm going to need a new car before 2018 (my current car is 24 this year) and there is no guarantee I'll fit comfortably in a Model 3. Most cars that size don't have enough leg room for me on long trips. I would never buy a car unless I can sit in one first. The Model S is one of only three I sat in where the seat goes back further than I need.

In any case I'm used to larger cars. My current car has the same wheelbase and width of a Model S.

Some people may wait for the Model 3 when they can afford a Model S or X, but the market for those two cars is so limited by price more than anything else. If Tesla passed on the battery price savings from the Gigafactory to consumers, sales would spike even with the Model 3 on the horizon.

A case of the Osborne effect in the car business is what may have happened to the Nissan Leaf. Last year they announced a new longer range Leaf and sales tanked of the shorter range Leaf. The old Leaf and new Leaf are in the same price range and fit in the same market niche, so they compete with one another. The Model 3 and 2nd Gen Teslas are in very different price ranges and compete in very different markets.

A Model 3 Osborne effect would be like sales of BMW 7 Series cars to tank because they announce a redesigned 3 Series. It's not going to happen, except for a few sales here and there.

 

[malcolm]

Tesla have wisely pitched the 3's range and performance below that of both the S and the X in Part 1. Nevertheless, it will be interesting to see the S and X figures over the next few quarters.

Elon has stated that he was really expecting M3 reservations to take off after Part 2 which does make me wonder why? I can't see hoards of people reserving simply because of a funky steering wheel or a cool HUD. Much like the X's nosecone, these things tend to repel and attract in equal measure.

The only thing I can see that could do it, is the announcement of the 3's production range and performance numbers, once the Gigafactory effect can be quantified (and vehicle deliveries forecast) more precisely.

I think these are going to be significantly better.

But I think Part 2 could also be the point where Tesla announces that the S and X will each be available in 90kWh and 100kWh variants (and maybe the 3 will be 70 and 80), since this is likely to be a relatively cheap cell chemistry swap. But whenever 100kWh gets announced it will be interesting to see whether it attracts new customers for entire vehicles or just upgraders wanting better 18650 cells.

In terms of their mission to disrupt the industry, Tesla "only" needs to achieve mass sales, (No pressure). To get there, it most definitely needs the S and X as development platforms that also sell in appropriate numbers. Classic halo/showcase vehicles. If/once they achieve that, does the (cowbells++) 3 become the ideal showcase vehicle instead? The case for "disruption" says it should.

In an ideal world all the cool model 3 tech and drivetrain technology could be adapted for both the S and X making them even better. But in the face of 300,000 reservations for the 3, do Tesla have the time/resources/hubris to do this? Should they?

 

[jerry505]

I read on forums from Model 3 reservation-holders who are expecting a P100D Ludicrous Model 3 that will be lighter, better handling, and faster than the top performance dual motor Model S.

These Model 3 theorists keyboard-dream that a Model 3 faster than the fastest Model S will not affect Model S sales because Model S buyers pay 140 grand for reasons other than performance.

I disagree. A Model 3 faster than top Model S will trigger The Osborne Effect.

 

[Jaff]

I read on forums from Model 3 reservation-holders who are expecting a P100D Ludicrous Model 3 that will be lighter, better handling, and faster than the top performance dual motor Model S.

These Model 3 theorists keyboard-dream that a Model 3 faster than the fastest Model S will not affect Model S sales because Model S buyers pay 140 grand for reasons other than performance.

I disagree. A Model 3 faster than top Model S will trigger The Osborne Effect.

I agree Jerry...there are some wild performance expectations by a few of the Model III folks...I'm sure, as Elon said, there will be a performance edition of the Model III, but I wouldn't expect it to "out-pull" either an S or X with Ludicrous...

 

[ChadS]

A Model 3 faster than top Model S will trigger The Osborne Effect.

True - if they pre-announce it. But even then how big the effect is depends on pricing and other factors. And the Osborne effect is not the only sales effect Tesla cares about.

The Osborne effect is when people don't buy your current product because you told them an improved version is coming; it won't apply once the T3 is available so we only have to worry about pre-announcements. Tesla didn't give details about T3's performance variants; probably partly because they are still working on it, but partly indeed to avoid people putting off a Model S P90D purchase now. I agree with you that some such effect would happen if they pre-announce, so that encourages them to say as little as possible until the last moment. (However, there are other factors that push them to talk about it early, so who knows what they will really do).

But once the T3 PxxD is available, some people will prefer the S PxxxD even if the T3 is slightly faster (which is entirely possible and done by other companies). Some prefer the styling of the S, the extra space, the cachet of a more expensive and less common vehicle, or the greater cargo versatility - and it's entirely possible there will be other S advantages by then. The T3 isn't an improved S, it's a different product. Yes there is overlap, but they will sell side-by-side.

While there clearly will be some cannibalization, it's not necessarily bad (though it could be). Right now the S is the only game in town for long-distance, EV performance. The T3 will be a second option so there has to be some cannibalization. But it's possible the margins (which is the important part!) might be similar; and even if not, having a wider variety of options will grow the market and give Tesla more sales overall.

Most importantly, a very-high-performance 3 is likely to take more sales from ICE manufacturers than it will from Tesla's S line. I think Tesla should make the T3 performance version as quick and compelling as they can.

 

[wdolson]

I read on forums from Model 3 reservation-holders who are expecting a P100D Ludicrous Model 3 that will be lighter, better handling, and faster than the top performance dual motor Model S.

These Model 3 theorists keyboard-dream that a Model 3 faster than the fastest Model S will not affect Model S sales because Model S buyers pay 140 grand for reasons other than performance.

I disagree. A Model 3 faster than top Model S will trigger The Osborne Effect.

The performance model of the 3 will not outperform the SP90DL or whatever the pack size is then. The Model 3 will have a smaller pack which will effect max acceleration performance negatively. The 3PxxDL might be the best performing car in it's class, but the SPyyDL will always beat it.

 

[ChadS]

Sure, the bigger car has more power. But it's also heavier, so I don't think it's a closed case. And part of it depends on gearing, tire choices and such.