Short-Term TSLA Price Movements - 2016

[Tenable]

So giving existing customers priority is a nice customer loyalty gesture, and yes, these seasoned customers may be more tolerant of early production flaws. But let's not confuse existing customers with early adopters. Not all of us who own a Model S are early adopters. I for one am not. Moreover, there are many first-time buyers who will be early adopters. An early adopter with only an average income has been waiting more than 5 years already for a Tesla within their financial means. These are the early adopters who are being told that their support of Tesla is not valued as highly as that of wealthier customers who could already afford a Roadster, S or X. Why should this early adopter be told that they should wait an extra year, so that first class customers can be served before them? Yeah customer loyalty is great, but elitism stinks.

It's not even clear why Tesla would want to down sell an existing customer from a Model S to a Model 3. How many Model S trade-ins might this generate? If there are too many, this could depress the resale value of the Model S, which also depress demand for new Model S and X. Yeah, customer loyalty is great, but if the value of Models S and X are undermined, loyal customers will not be happy. Tesla should be inducing existing customers to upgrade into higher value Model S and X, not down selling to Model 3.

LOL, how is someone who has waiting on the sidelines until this point an early adopter? I understand the price point of earlier models is not within reach of everyone. But this entitled sentiment is laughable. In life those who are willing to pay more always get priority. Would you sell me your house because I admired it for years while waiting patiently for you to be ready to sell it instead of someone who strolled by casually and offered 40% more? I doubt it. If your answer is yes, I would never invest in your business.

 

[FredTMC]

I think the communication issues in regards to model 3 unveil stem primarily from the fact the Elon is probably wanting to be involved in a lot of the decisions, and Elon only has so much time to communicate what he wants to do with his staff. So they are stuck waiting for him to tell them so they can tell everyone else. And in reality, we can be patient and just wait for the information as it comes. Something I have become very used to with Tesla so not a problem for me.

Yep. I'm certain that Elon is a control freak about communications. I'm sure that maked Reyes's communication job super difficult and frustrating. MX delivery communication and a million other news events are super difficult especially if Elon isn't on the same page as others in the mgmt team.

 

[jhm]

I see the long game, but the short term result will be loyal employees and bleeding edge consumers getting the first 6 months of cars. That is the valley of death for Tesla and TSLA. Working out the pain with employee cars and getting a few thousand daily reports about quality issues and the greatest motivation ever to build a perfect car. For Tesla it would also mean a lot of Tesla EV's in the lot and not a bunch of rust bucket GM's and Toyota's. They'll also get to test the mobile snake charger that will juice up rows of cars from a single supercharger. And everyone will be able to go to AP mode and have their car park itself when they hit the parking lot, this will also be the largest test of smart cars in a single location.
Getting the first 5000 cars built could take 2-3 months or more. Focusing on employees for first deliveries could actually speed up the delivery cycle, by ramping up the pilot project higher than possible with external sales. I hope they also provide an employee discount, and they get the tax credit.
Regarding the 7500 tax credit, Tesla should hit 200,000 in early 2018 (March 2018 sounds right to me). Getting that credit will be limited to only about 25000 Model 3 buyers. It is not going to be relevant to the sales process.

I do see the long term benefit, I just think the short term gains are much more important.

What makes you think that a 50 year old Model S driver who make $450k per year is going to be more tolerant of new model defects than 25 year old first-time buyer who makes $50k per year. I really don't buy this argument that existing customers are uniquely capable in this area. I have mere suggested that the early Model 3 buyer be a mix of new and existing owners. The one who are most eager to get this car can sort this out for themselves. We don't need to play nannies who make categorical decisions about who's ready for a Tesla and who's not. If you want to be first in line and are willing to pay full price, that's enough qualification for me.

 

[brian45011]

I believe they've sold about half there cars in the US, so
2013: Guess half S to US, say 12,000.

You might be light by about 5,000 for 2013.
Tesla Europe Registration Stats

Ford and Mercedes report their eligible sales:

IRC 30D – Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales

It would be helpful if all manufacturers did this, particularly Tesla and GM since some M3 and Bolt
potential customers might not buy if there is uncertainty about getting a credit.

The phase out begins the 2nd quarter after the 200,000 level is reached, so if Tesla hits that level very early in a quarter, there could be close to six months during which the full $7,500 credit would be available.

 

[jhm]

LOL, how is someone who has waiting on the sidelines until this point an early adopter? I understand the price point of earlier models is not within reach of everyone. But this entitled sentiment is laughable. In life those who are willing to pay more always get priority. Would you sell me your house because I admired it for years while waiting patiently for you to be ready to sell it instead of someone who strolled by casually and offered 40% more? I doubt it. If your answer is yes, I would never invest in your business.

An early adopter is someone who is eager to pay full price for new model with no track record. Someone who has bought a 2014 or later Model S is not to my mind an early adopter. Anyone willing to buy a 2017 Model 3 is an early adopter. If you would prefer to wait for a 2019 Model 3, you are not an early adopter.

 

[doctoxics]

Honestly, why anyone would think they would present anything less than a working protoype for their most important car is completely beyond me. As far as I know Tesla has always presented working prototypes for their main unveilings. They have been working on Model 3 for quite some time, its nothing new. They are building the Model S en masse, ramping up hard the even more complicated to build Model X and people think they can't present a vastly more basic car for THE most important Tesla event?

What might be really interesting is the battery pack in the prototype Model 3 that will be test driven by the media on the 31st. Are the cells the new chemistry that is to be used in the production version of the Model 3? If so, what are the costs and what is the energy density?

 

[jhm]

I don't see how delaying new customer acquisition in 2017 vs 2018 is going impact sales in 2025 as significantly as you think it does. And Tesla isn't after the whole market, they just need the market to transition to fossil fuels. If EV's reach 25% of the new car market, the market takes care of itself. Just look at Norway, they reached over 10% last year, and they're now on their way to 100% BEV's by 2025: Norway wants all new cars to be electric by 2025

As the EV penetration increases, the cost of new customer acquisition increases. So by delaying acquisition, you incur further acquisition costs to make up for lost opportunity or you fail to grow into your full potential.

Do you think that new customer acquisition costs will come down after 2017. If so, I'd like to hear your theory on why that would be the case.

 

[eloder]

Why does this matter? Word of mouth is a key marketing driver for Tesla. Expanding the customer base with first-time buyers will bring word of mouth into new, previously untaps social networks. Selling Model 3 to existing customers will of course generate some word of mouth but that is a small increment to what already exist. By contrast, selling a Model 3 to a first-time customer will touch more people and generate more incremental word of mouth.

I believe Tesla really does need to build out this customer base to take the Model 3 mainstream, and this takes time to build. So I believe a mix of first-time and repeat customers in the first six months of production would best serve Tesla's marketing needs. Without that Tesla may need to use advertising to boost awareness into the mass market.

Personally, my opinion is that getting the "beta test" vehicles out to owners first will work out much, much better in the end.

A current Tesla owner buying an EV: IT'S AWESOME! Doesn't even mention some of the service center visits and errors from being a super early production model.

A first-time EV buyer who is used to Priuses or Model 3's getting an early buggy model: What in the world, why is my door randomly not working? I'm going to tell all my non-enthusiast friends how much this sucks.

The Model 3 will no longer be an early adopter, but I don't think Tesla will ever outgrow the "public beta test" phase that accompanies their blazing-fast style of innovation and improvement.

What makes you think that a 50 year old Model S driver who make $450k per year is going to be more tolerant of new model defects than 25 year old first-time buyer who makes $50k per year.

Because someone making $450k per year has many, many options for a high-end luxury car and doesn't need to care about fuel costs, while someone making $50k per year looking for a long-range EV only has a single option--the Model 3.

I don't consider the Bolt viable because it likely will not reach road trip capabilities in its production lifetime.

It all boils down to this: they're going to be production-constrained for many years whether they sell to owners first or new adopters first.

HOWEVER

First impressions and initial reviews only happen once.

Just like the in-store reservation first model, if there are issues that policy will almost guarantee someone being near a store. There will be far less complaints if someone has to go 10 miles to fix an issue than 350 miles, no matter how tolerant or untolerant a person is.

 

[The Blue Owl]

LOL, how is someone who has waiting on the sidelines until this point an early adopter? I understand the price point of earlier models is not within reach of everyone. But this entitled sentiment is laughable. In life those who are willing to pay more always get priority. Would you sell me your house because I admired it for years while waiting patiently for you to be ready to sell it instead of someone who strolled by casually and offered 40% more? I doubt it. If your answer is yes, I would never invest in your business.

Your example does not support your argument. Tesla is not organizing an auction, where "those who are willing to pay more" have priority.

 

[dc_h]

What makes you think that a 50 year old Model S driver who make $450k per year is going to be more tolerant of new model defects than 25 year old first-time buyer who makes $50k per year. I really don't buy this argument that existing customers are uniquely capable in this area. I have mere suggested that the early Model 3 buyer be a mix of new and existing owners. The one who are most eager to get this car can sort this out for themselves. We don't need to play nannies who make categorical decisions about who's ready for a Tesla and who's not. If you want to be first in line and are willing to pay full price, that's enough qualification for me.

i think employees first is great. Handle the ramp with internal staff. Prior owners I do think will be more forgiving. They've seen S and X roll outs and if they want to be in front of the line, they're expecting challenges. Personally I'd like to get the 25,000th car. More adventurous folk would be ok with vin 1000. Less informed consumers waiting an unexpected two months for their new car might be hammering tesla on Facebook.

Glad we're having this discussion. X rollout is happening and our focus is on a new new car.

 

[mejojo]

Glad we're having this discussion. X rollout is happening and our focus is on a new new car.

...in the short-term price movements thread....

 

[JRP3]

An early adopter is someone who is eager to pay full price for new model with no track record.

No, an early adopter is someone who is eager to pay full price, and, in fact, a premium price, for a new technology with no track record. That describes Roadster and Model S buyers.

 

[JRP3]

Because articles similar to this stated that there would be no prototype: Group

Those articles were always wrong though. When asked when the first pictures would be shown Elon honestly answered "End of March". All that meant was that no pictures would be revealed before the car was revealed. Some people misinterpreted his answer.

 

[Crowded Mind]

Your interpretation places great emphasis on working out production glitches before reaching the general market. How many cars do you think Tesla needs to produce before it is ready for prime time?

Employees ~ 10k reservations
Owners ~ 90k reservations
In store ~ 100k
Online ~ 200k

So altogether that as maybe 400k before prime time.

So why should a first time buyer bother to place an online reservation? It looks like they may not get their cars until 2019. Moreover, the tax credit may well be gone by that time as well. At least, priductiin bugs will be eliminated. This does not seem like a compelling value proposition. You may as well save your deposit money and buy your call some time in 2019 or 2020 when the annual volume has reached 400k.

I think an unintended consequence is that Tesla owners will be the last beneficiaries of the tax credits while first-time buyers will largely be deprived of that incentive. Does working the bugs out of production make up for that?

Firstly, your estimates for employees, owners, and in store are much higher than mine. I would be shocked if 66% of employees and 85% of Tesla owners make a reservation. Now if they are able to reserve an unlimited amount, then maybe my thinking on that changes, but that is not clear at this point. I will assume there is some limit. Same with in store. I think there are less than 250 stores, so that would be 400 people/store that couldn't wait an extra 9 hours for the online reservations to open, and are perfectly happy to deposit $1,000 on something they've never even seen. If Tesla gets 100k reservations in 9 hours, this is all moot, no? TSLA would be through the moon the next day. I think we're looking at something more like 50k that are prioritized above the online reservations. This should give Tesla the time it needs to improve the production process so that the car they are delivering to people that don't have either experience with Tesla (employees, owners) or a high brand enthusiasm (went to a store and reserved sight unseen) is as issue-free as possible.

Regarding the customs acquisition aspect, we don't disagree fundamentally. Accessing this new pool of customers is critical and ensuring that these customers have a good experience is the best way for Tesla's demand to grow into 2025. Where we disagree, it seems to me, is that you believe that whoever is at the front of the reservation list will respond the same to issues requiring service whereas I believe that employees, owners, and in store reservers are much more likely to be forgiving of these issues. Correct me if I am wrong in that assumption. Someone who is less acquainted or enthusiastic with Tesla will be more likely to spread their negative experience to their social circle than and employee, owner, or in store reserver. It does not mean that all or even most would respond that way, but the chances are absolutely higher with a less-initiated group. I don't see that as arguable.

I think customers who don't get prioritized will quickly move on from that slight. It's tough to hold a grudge on something like that, and even harder to complain about it to a social circle. Imagine being not very familiar with Tesla in two scenarios. The first, a friend is complaining to you that they reserved a Model 3 and were placed behind current owners and employees in the queue for delivery. Hearing that, you may have a small reaction of empathy, if any. You may feel a little sorry for your friend and you may get a small elitist vibe from Tesla as a company. Your view on EVs is unchanged. In the second, a friend is complaining to you about their new fully loaded Model 3 that was one of the first off the line. They are having all sorts of service issues and Tesla doesn't even have any service centers nearby so their car is constantly being taken to a center 3 hours away for maintenance. They like the car, but they wish they would have just gotten that BMW instead, then they wouldn't have these headaches. Hearing that, your view of Tesla and EVs is highly tainted. This scenario is a much, much bigger headwind for Tesla. A worse perception (unreliable, complicated vs. maybe elitist) that is a lot more difficult to prove wrong. Especially on top of the whole consumer reports reliability thing. I realize this is an extreme scenario, but the likelihood of scenarios like this is maximally suppressed by Tesla's strategy for prioritizing reservations. Therefore, likelihood of positive reviews is maximized. To me, this is absolutely the correct way to maximize customer acquisitions through 2025. Some people complaining about their reservation slot is not going to have an impact in any social circles. Complaining about not getting a tax credit on a premium vehicle is more likely to be perceived as whining than to impact opinion on Tesla.

I agree that the tax credit expiration is a frustrating complication, and as someone who will fall into the 3rd or 4th priority, it is annoying that I may lose that chance because of this, but I still feel it is the right path as an investor.

Apologies for sufficiently straying from the premise of the thread.

 

[Ukland Wombat]

Good, we're making progress. Often disagreement exposes different sets of assumptions and expectations.

The situation that concerns me the most are the years between product launches. For example, demand creation this year should be pretty easy because the Model X is so new. Truly the hang up this year, if there is any, will be on the production side. However, for the sake of argument suppose that the Model 3 launch gets pushed out to 2019. We could perhaps do 120k Model S/X in 2017, but pushing this out to 180k in 2018 may reach market saturation limits. If 2016 and 2017 had been exploited to draw in lots of new customers, then a portion of these can be tapped to buy a second car in 2019. So expanding the customer base created a base level of demand that can support growth even when no new product is being offered.

In fact, I am quite optimistic about the Model 3 coming out by the end of 2017, so I am not particularly concerned about the scenario above. But it illustrates a point. And indeed I believed we lived through this problem last year. The Model X was too late to give 2015 sales a real boost.

But there is a longer-term issue here about building a customer base. The companies that have to spend the most on loyalty are the established companies with substantial market share to lose. Currently, Tesla is on its path to gain its first 1% of market share. Indeed it is mostly supply constrained, so even if competitors were able to lure away most of its customers, it would still be able to sell every car it makes. The situation is different, when Tesla has say 5% market share and would like to grow that to 7.5% in one year. Gaining 2.5% market share in one year is really hard. Tesla will need a solid base of established customers buying their second, third or fourth Tesla, plus a massive infusion of new first-time buyers. And keep in mind that when Tesla has 5% market share, EVs will comprise maybe 25% of the new car market. So being the only EV maker with a compelling product is not going to cut it. There will be other compelling EVs on the market, or they simply will not command 25% of the new car market. So at this level, a well cultivated base of loyal customers is prerequisite to further growth.

So how does Tesla prepare itself for that reality only about 10 years away? Well, consider the early years of Amazom. They were all about building up a huge customer base, and that was absolutely critical to Amazon surviving and becoming the online retail market leader. In the 1990s it was relatively easy for Amazon to acquire customers. To do that in this decade is much more difficult. How many people have ever bought anything at jet.com? And yet practically everyone has bought something at Amazon. This is the sort of foundation I'd like to see Tesla lay in the next couple of years. The Model 3 is a huge opportunity to acquire new customers. We need to get those customers in 2017 so that that they can buy two more Teslas by 2025 and keep buying a new Tesla every four years thereafter. It's not going to get any easier to acquire these customers than it will be in 2017 when the Model 3 is the hottest thing on the market.

So I view the Model 3 as a customer acquisition event. It's not about making a single sale. It's about making a new customer for life. That is why we roll out the red carpet. These new customers should be shown the utmost respect because the longterm growth of Tesla depends on it. The reason why we should want 200k Model 3 reservation is not merely because that will convert into $10B in one-time sales, but because 200k new customers translates into more than $50B sales over the next 20 years. Or put another way a rate of $2.5B per year with 10% profit margin and a 20 P/E adds about $5B to Tesla's market cap. So acquiring an extra 200k customers via the Model 3 really ought to matter to use as shareholders.

So I absolutely love our existing loyal customers, but I do not want to delay new customer acquisition and incremental market cap on order of $5B by an extra year just to privilege them. There are many other ways to reward customers without delaying new customer acquisition.

jhm, I really like your posts. The way you are so patient to analyse and unpick detail for the benefit of all. Thanks to you, I've re-booted my thinking on TSLA a few times, but not on this matter....at least not yet.

I can't seem to wrap my head around the need for a broad "customer base". Yeah, I can follow your reasoning, but the very idea of "customer acquisition" and "customer for life" carry little weight in my world view. Maybe I don't get it because I'm a fickle customer, no matter whether I'm buying a loaf of bread or a car. I show no loyalty to any brand.

Perhaps I have trouble seeing that other people might be different and that "loyalty sales" and "conquest sales" aren't just abstract distinctions invented to help keep marketing professionals in work.

Also, I find it a bit of a stretch to attempt to see what might happen in the EV market 10 years out from here in terms of how the Tesla customer base might grow along the way. It seems to invoke a kind of false precision.

There are just too many other important factors at play. Fully autonomous driving. Transport as a service. EV incentives or ICE disincentives in cities. A distributed grid... solar + battery storage + EV makes a whole value proposition much greater than the sum of its parts. These factors are all a very big deal playing on the customer when choosing whether to get acquired by Tesla...and it will play out very differently in each geography. It's all so very fluid...too fluid to analyse, I think.

To make a "fluid" analogy for a moment, it's like you are trying to predict the state of flow in a fluid system 10 years out based on a laminar flow model of computation when, because of all the other important factors, the flow would almost certainly go turbulent after two or three years. Well, once flow is turbulent, goodbye predictions.

IMO, as long as Tesla is at the cutting edge of both coolness, convenience and value (in it's chosen market segments) then "customer acquisition" will look after itself. For any cutting edge Tesla product, acquisition will be the opposite of a struggle for the company (or a huge cost to the company as in SolarCity's case, what are they doing wrong?).

Forgive me, but if the internet went down in some geography for a few days (apocalypse?), I can imagine sweaty dirty wannabe customers desperately scrambling over each other to get closer to the Tesla official "Acquire me first!" "Take my bribe!". I just don't see customer acquisition as a problem.

Anyway, hasn't the "Acquire me first" sentiment already been expressed by several TMC members a few posts upthread? If the product remains cool, why would that sentiment go away?

 

[Bgarret]

It is 2016....18 months, or more from the Model III debut. Chill. I don't know the algorithm that will sort Model III reservations. And neither do you. What is the calculus between reservation #, previous owner, reservation date, height, location....it will be what it is.

What I believe is demand will be so great, that our estimate of production, based on 1 gigafactory in Nevada and the production capacity of Nummi in Fremont is grossly underestimating the Tesla production in 2016. Ad in factories and gigafactories in Europe and Asia and you may get closer to the mark. It will render reservation questions less important.

 

[Oil4AsphaultOnly]

As the EV penetration increases, the cost of new customer acquisition increases. So by delaying acquisition, you incur further acquisition costs to make up for lost opportunity or you fail to grow into your full potential.

Do you think that new customer acquisition costs will come down after 2017. If so, I'd like to hear your theory on why that would be the case.

I think the acquisition costs won't matter at all until 2025 when they _might_ be able to build 4 million (5% of market right?) cars per year. As of now, we only have visibility into Tesla producing 2 million (Fremont, Tillburg, China, and France?? - SWAG) by 2023.

As Crowded Mind and others have explained in pretty good detail, the greater risk for Tesla is bad PR from new owners who don't know what they're getting into at the head of the line. And to drive home the point further, the only people who stand a chance at getting the full federal tax credit will be those who order the top-spec model 3. Knowing this, there will be some first-time Tesla buyers who will order the highest trim thinking they'll be amongst the first to get theirs. There are plenty of threads of first-time signature model X buyers who are PISSED that their cars aren't ready before the production cars were released (even some X90D's). We forum members are aware of this, and can deal with this, but I've got co-workers who are dead-set on lining up the morning of the 31st to be first to order a model 3, and they have no clue on what to expect (didn't even know how the tax credit worked!!). I've advised them to temper their enthusiasm, but that's just a subset of the general population. As a shareholder, I actually want them to NOT be first.

 

[sub]

I would rather have the people that are going to complain be complaining to others about how far back in line they are to get their Model 3, this will make those that don't know anything about Tesla curious. Let's be honest though, too many people have nothing better to do but complain about everything, just look around the forum. How many posts are there from members who complain because Tesla didn't recognize the world revolved around them (the customer). I'm all for Tesla rewarding the hard working employees and those that have laid down their cash in support. The whiners and complainers can go drive a bolt.

Edit - typos.

 

[everman]

Sure there are operational and profit based reasons for such distinctions. But what is profit advantage of making first-time buyers wait longer than owners? Both are putting up the same money for the same configuration. Indeed, I believe that the first-time buyer is actually creating more value for Tesla. They do not have a Tesla to trade in and dilute the resale value of a Model S or X. And they have whole new social networks in which to be sharing positive word of mouth. First-time buyer's also have greater opportunities for selling a second vehicle. Just compare on couple with two Model S to another couple with two non-Tesla vehicles. So selling a Model 3 to the first couple is a down sell, but to the second couple you can sell two cars, one now and a second in a couple of years.

I really do believe that conquest sales create more value for Tesla than loyalty sales. Why am I the only one who sees this?

You're not the only one. I'm firmly in this camp. Spread out the Tesla umbrella to more people sooner by accepting first come first served, and hopefully many of those will be new Teala owners.

 

[Gerardf]

Glad we're having this discussion. X rollout is happening and our focus is on a new new car.

+1

To my opinion this thread is becoming less and less of a "short-term price movements / investors" thread. For example a discussion about how Tesla should arrange the order of reservations and long-term clean energy developments are very interesting, but do not belong in THIS thread as they do not influence TSLA short term. (maybe long term, but there are (investor-section) threads for that.

For me this thread used to be one of my favorite threads on the forum, a great time saving TSLA World-wide news aggregator, with people updating us all on the latest analyst updates, the latest Pricetarget info from various trader screens, links to Tesla investor-related news in the world-wide media, production progress in the factory as well as interesting personal views & analysis relevant to the influence on the short term TSLA Share Price around these news items.

It has now become very hard to find such information on this thread, as it is buried in long page long discussions that are not short-term, sometimes not even investor related. I am not saying these post are not interesting discussions, au contraire, but I see more-and-more discussions here that belong in other threads. It makes this thread almost a slow-chat channel where any subject goes.

I vote for making this a short-term TSLA price & investor news thread again.