Short-Term TSLA Price Movements - 2016

[sundaymorning]

That is a definite possibility but here is one more: at $35K (US) the Model 3 is close to the average price of new cars/trucks sold in the US and comparably priced to a loaded Camry.

Elon may be expecting a massive amount of demand from customers who would otherwise buy a Toyota, Honda, Ford, GM etc. in the $20-35K price range, but stretch their budget a bit to buy a Tesla. Those customers could send the number of M3 sales into the millions, but they will likely buy something close to the base model, driving down the ASP. Elon keeps emphasizing how compelling the base model will be, which seems like an appeal to customers who don't want to or can't afford to pay $40K+ for lots of options, but would rather drive a Tesla than a Camry, Accord, etc.

I would be surprised if the PXXD is less than $60K, but would (selfishly) love to be wrong about that.

+1000

A fact that not many think about.. a 1million reserve number might spell doom the the other car manufacturers. Especially if they loose potential customers for their more profitable higher end model.

How long until we see the first one "folding", and going into partnership With tesla to start producing a Real EV? Who will it be? Nissan?

Good points. All the things you've mentioned were conveniently left out of the bear argument. There's FUD about m3 cannabolizing S/X, yet bears fail to see that M3 will actually cannabolize the sedan market from every traditional automanufacture from a Honda fit to Toyota Camry all the way to Bimmers 3/5 series.

It's very likely that another auto company is putting serious thoughts into partnering with Tesla to build another gigafactory, if none is interested, they'll be doomed. It's a win-win for Tesla.

Spelling out "one million" lost of potential customer maybe far fetch at the time being but definitely doable by end of 2017. To put things into context, as of this weekend, traditional auto companies will see $8 billion less in revenue flowing into their coffers due to Tesla's 232k preorders.

 

[xhawk101]

It's clearly X style. When I first saw the nose of X, I wasn't sure about it, looks weird. It took me some time to like it. And when I saw it in person, I started to think the fake grill on the S was not necessary. I think the same process would go for the 3's front for some people.

Agree it's reminiscent of thinking of the front of an airplane which is rounded designed for aerodynamics and has no need for an air intake or a spaceship for that matter.

 

[MitchJi]

PBS has a M3 interview:
Here's a first impression of driving in a Tesla Model 3

 

[BriansTesla]

the more the better. but big reservation number will refrain new reservation rate, first, tax credit will be gone; second, a lot of people just can't afford such long wait time

This doesn't matter. As Tesla builds 3's and the reservation queue diminishes, people with less patience will climb on so that the number will never go to zero. In the mean time, it doesn't make any difference if there are 100,000 or 300,000 other than for production planning purposes. More reservations is always better and I would rather have the patient customer than the impatient one. They are far nicer to work with.

 

[sundaymorning]

This doesn't matter. As Tesla builds 3's and the reservation queue diminishes, people with less patience will climb on so that the number will never go to zero. In the mean time, it doesn't make any difference if there are 100,000 or 300,000 other than for production planning purposes. More reservations is always better and I would rather have the patient customer than the impatient one. They are far nicer to work with.

Agree with your points. Another bad argument floated by bears: "a friend of a friend of mine refuses to wait 1.5-2 years for a model 3, so he's going to cancel his reservation and settle on a leaf. I also read this sentiment on seeking alpha."

The bull argument: "my brother, uncle, aunt, boss and co-worker waited 3 years for this vehicle since hearing about the S, we waited in line for 3 hours to put a deposit. There's no way we're canceling."

 

[sunhelm]

Thanks for the reply! It seems like the thread consensus is that Tesla is unstoppable at this point? If funding is not a problem are there any major problems/risks left for Tesla?

Below is great info on Risk disclosures by Tesla on their recent 10K (Item1A). As a TSLA investor, it provides valuable info as what the company thinks are factors that will materially impact the company.

Be warned. It's sobering but do keep in mind that Tesla today is stronger and more stable and proof they are able to overcome problems that come their way.

Tesla Motors - Annual Report

 

[Stretch2727]

From the WSJ re 2015 US car sales:

"In all, auto makers sold 17.5 million cars and light trucks in the U.S. last year, a 5.7% increase, and on average paid more for each one. Americans overall spent about $570 billion on new rides—fueling an industry revival that is putting more money in the pockets of auto workers, dealers and executives."

Just something to think about. That 5.7% is just 940,643 more cars than the previous year's numbers.

Tesla reservation holders are highly likely NOT to be visiting a car dealership this year starting now.

A 7% drop on US vehicle demand (sales to be precise) between 2007 and 2008 was sufficient to bankrupt Chrysler and GM and put Ford astonishingly in debt to the point of handing over the Ford brand and logo as lending security.

These companies are projecting a sustaining increase in 2016 demand which is the kind of thing that leads to channel stuffing and escalating days of finished goods inventories and stalled cash flows and supplier credit accounts hitting limits - if the customers don't show up as projected.

Tesla will undoubtedly accumulate over a million reservation holders this year possibly over a million in the USA alone who most likely won't be going to a car dealer as well - and reservation holders are not the general public, they are the specific subset of the general public that dealers and ICE OEMs are relying upon most especially to turn up, that is the subset that is in the market for a new car.

So if you are legacy manufacturer CEO and you have seen the light on electric cars what do you do catch up?

For the next 5 years:

-Minimal Investment in ICE platforms. No design updates, min to meet emissions and safety requirements.
-$1B for a high speed charging network. We are looking 5 years out.
-$5-10B for batteries. Either you invest in batteries or you will not be able to compete on margin with Tesla. LG or someone else will be getting all the profit on the car you sell.
-The money saved on ICE investment goes all EV platforms.
-Huge write down of your existing engine and transmission tooling and facilities, $10-15B

Your ICE cars will be dated and technically behind in 5 years selling in lower volumes or lower margins. (we could argue this will be the case even if investment continues.) Your putting the company in a direction to invest or write off $25-40B in capital for products that currently have less than 1% market share! Your dealers will not like you as you are taking away most of their revenue source in the service dept. They may not even help you sell the new EV cars.

This is a bet the company move. You either end up competing well or bankrupt. Most CEO's are pretty risk adverse and have a 5-10 year term. I doubt they will take on this level of risk. In 5 years they will still have 95% market share and be making money on ICE cars. The longer they wait the bigger the investment (and risk) becomes to meaningfully change direction.

This is why it is called the innovators dilemma.

 

[BobSk]

As part of my investment process, I often think "what would I do if I am the owner/CEO" of a business. It gives me headache when I put myself into those CEOs' shoes. (Mercedes, BMW, AUDI, GM, Ford, Toyota, etc.). Tesla will expend quickly with superior products. I can try to catch up, but Tesla moves faster. I can try to move to full electric, but how to deal with my strained legacy assets?

 

[Emil]

PBS has a M3 interview:
Here's a first impression of driving in a Tesla Model 3

How is that the Chevy Bolt is mentioned as a competitor in nearly every article? That is simply misleading.

 

[hershey101]

They should put a reservation counter on the Model 3 website, and an estimated delivery date if you reserve today... Then we could get some popcorn and watch as the counter goes up by thousands every hour and the delivery date keeps being pushed back month after month.... #SaturdayNightMovies

 

[Johan]

As part of my investment process, I often think "what would I do if I am the owner/CEO" of a business. It gives me headache when I put myself into those CEOs' shoes. (Mercedes, BMW, AUDI, GM, Ford, Toyota, etc.). Tesla will expend quickly with superior products. I can try to catch up, but Tesla moves faster. I can try to move to full electric, but how to deal with my strained legacy assets?

The obvious (to me) answer is to bud off part of the company in to a new brand, or transform an existing sub-brand (example Toyta - Lexus, Nissan - Infiniti or GM - Cadillac), fund that venture generously, bring all your engineering talent there. Let the ICE business keep humming along while funneling profits in to the new company and have the ICE company go bankrupt eventually.

 

[BobSk]

As part of my investment process, I often think "what would I do if I am the owner/CEO" of a business. It gives me headache when I put myself into those CEOs' shoes. (Mercedes, BMW, AUDI, GM, Ford, Toyota, etc.). Tesla will expend quickly with superior products. I can try to catch up, but Tesla moves faster. I can try to move to full electric, but how to deal with my strained legacy assets?

As the CEO of an ICE car company, the best move I could make is to own some Tesla shares. Unfortunately both Mercedes and Toyota sold the shares. For years I have been calling that's equivalent to MicroSoft CEO Steve Balmer selling their Apple stake 14 years ago.
Same for the oil companies and nations.

 

[BobSk]

They should put a reservation counter on the Model 3 website, and an estimated delivery date if you reserve today... Then we could get some popcorn and watch as the counter goes up by thousands every hour and the delivery date keeps being pushed back month after month.... #SaturdayNightMovies

That's a great idea.

 

[Krugerrand]

Advertising revenues are the lifeblood of the media. Tesla does not advertise. It is a competitor of companies that advertise heavily. Of course Tesla will likely advertise eventually, and media outlets may be wise to start developing favorable relationships with Tesla.

But when is 'eventually'? I can't see a single reason for traditional advertising in the foreseeable future, I just can't. People LOVE to talk and with everyone so connected to social media....well, just look at what's happened with the Model 3 reservations. Thousands of people lined up around the world! When this car starts hitting the roads and people realize what they'll be getting for the base price...um, yeah... Advertise? What the heck for? Another company would have to come up with a vehicle that either offered the same compelling list of items at a lower price, or a better list of compelling items at the same price for Tesla to have to start flogging the ads. I don't see that company or product yet - not even in a concept - but maybe I've missed it?

 

[sundaymorning]

So if you are legacy manufacturer CEO and you have seen the light on electric cars what do you do catch up?

For the next 5 years:

-Minimal Investment in ICE platforms. No design updates, min to meet emissions and safety requirements.
-$1B for a high speed charging network. We are looking 5 years out.
-$5-10B for batteries. Either you invest in batteries or you will not be able to compete on margin with Tesla. LG or someone else will be getting all the profit on the car you sell.
-The money saved on ICE investment goes all EV platforms.
-Huge write down of your existing engine and transmission tooling and facilities, $10-15B

Your ICE cars will be dated and technically behind in 5 years selling in lower volumes or lower margins. (we could argue this will be the case even if investment continues.) Your putting the company in a direction to invest or write off $25-40B in capital for products that currently have less than 1% market share! Your dealers will not like you as you are taking away most of their revenue source in the service dept. They may not even help you sell the new EV cars.

This is a bet the company move. You either end up competing well or bankrupt. Most CEO's are pretty risk adverse and have a 5-10 year term. I doubt they will take on this level of risk. In 5 years they will still have 95% market share and be making money on ICE cars. The longer they wait the bigger the investment (and risk) becomes to meaningfully change direction.

This is why it is called the innovators dilemma.

I agree. It's very difficult for CEOs to take on risk that would harm their company's short term stock valuation. If a company like VW decides to change their image and build a gigafactory plus a Nummi like plant, it'll cost them $10 billion. The media, their shareholders and shorts will use the same argument they are using against Tesla: that you are spending our company into bankruptcy. Now if you were a CEO, why would you want to take on this risk?

If you were a small time director/manager with 2 kids and a mortgage, it will be in your best interest to stick with the status quo and keep churning out ICE and keep your shareholders happy bc it brings the immediate gratification of robust revenue . This is a catch 22, you're screwed both ways... But it's better to watch your train wreck in slow motion than go head on against lost of revenue/over spending.

 

[BobSk]

The obvious (to me) answer is to bud off part of the company in to a new brand, or transform an existing sub-brand (example Toyta - Lexus, Nissan - Infiniti or GM - Cadillac), fund that venture generously, bring all your engineering talent there. Let the ICE business keep humming along while funneling profits in to the new company and have the ICE company go bankrupt eventually.

That's a good direction. I think the result will be disappointing. If I do that with 10 billion dollars, I still have no chance to compete against Tesla. There are two big problems: 1. Tesla products and services will be better than mine. 2. They are not greedy. How should I price my products?

 

[BornToFly]

What we need is a tweet from Elon saying "Model 3 interest has generated a big increase in Model S reservations."

 

[BriansTesla]

Agree with your points. Another bad argument floated by bears: "a friend of a friend of mine refuses to wait 1.5-2 years for a model 3, so he's going to cancel his reservation and settle on a leaf. I also read this sentiment on seeking alpha."

The bull argument: "my brother, uncle, aunt, boss and co-worker waited 3 years for this vehicle since hearing about the S, we waited in line for 3 hours to put a deposit. There's no way we're canceling."

I would also guess that anyone canceling would be likely to look at other electric cars to purchase, so helping the master plan of electrification.

 

[lango]

So if you are legacy manufacturer CEO and you have seen the light on electric cars what do you do catch up?

For the next 5 years:

-Minimal Investment in ICE platforms. No design updates, min to meet emissions and safety requirements.
-$1B for a high speed charging network. We are looking 5 years out.
-$5-10B for batteries. Either you invest in batteries or you will not be able to compete on margin with Tesla. LG or someone else will be getting all the profit on the car you sell.
-The money saved on ICE investment goes all EV platforms.
-Huge write down of your existing engine and transmission tooling and facilities, $10-15B

Your ICE cars will be dated and technically behind in 5 years selling in lower volumes or lower margins. (we could argue this will be the case even if investment continues.) Your putting the company in a direction to invest or write off $25-40B in capital for products that currently have less than 1% market share! Your dealers will not like you as you are taking away most of their revenue source in the service dept. They may not even help you sell the new EV cars.

This is a bet the company move. You either end up competing well or bankrupt. Most CEO's are pretty risk adverse and have a 5-10 year term. I doubt they will take on this level of risk. In 5 years they will still have 95% market share and be making money on ICE cars. The longer they wait the bigger the investment (and risk) becomes to meaningfully change direction.

This is why it is called the innovators dilemma.

It will most likely come from the board and also be fueled by consumer pressure and national pressure.
They have to change how they do investment calculations and decisions and plan and invest for very high volumes even if they don't know if they can sell them, if they don't they are going to be priced too high or be a less good product. They have never done this before but only modeled for high volumes if that model or platform had a history of high volumes. Tesla would not sell Model 3 for $35k either if they expected life-time production to be 100k.

Their current plan for electrification is to sell PHEV for 5+ years and mark them up with the extra drive-train cost and then have government incentives to bring the difference down. By doing this they can build up both EV experience and supplier contracts and eventually move to BEV in a less risky way than doing it right now. If 20% of vehicles sales are PHEV that would be GF volumes of batteries in total so it would also bring battery cost down.

Model 3 and Tesla destroys those plans. Government are not going to be as willing to give credits to PHEV when it is clear you can build a BEV with zero emissions. Current loyal customers will ask them over and over why they don't have a good BEV, and many will abandon their brand and buy a Tesla. And buyers with no loyalty that don't need the range advantage or refueling away from home advantage with ICE and PHEV will buy a Tesla, too.

The only way out for them is to take huge a gamble on BEVs they don't know if they can sell. For example VW need to invest and model for a million Golf electric and order batteries for that volume. They also have to make this work with the dealer network and make sure there is battery capacity available which Tesla solved with GF.

I don't think any current CEO is prepared to do this. It is just too risky and the decisions for the coming years are already in place. Fundamentally changing how the company do investment calculations is also a very big thing.

In the end they will continue with the PHEV plan and do BEV to at most 5% commitment so Tesla won't have any serious competition.

 

[BriansTesla]

So if you are legacy manufacturer CEO and you have seen the light on electric cars what do you do catch up?

For the next 5 years:

-Minimal Investment in ICE platforms. No design updates, min to meet emissions and safety requirements.
-$1B for a high speed charging network. We are looking 5 years out.
-$5-10B for batteries. Either you invest in batteries or you will not be able to compete on margin with Tesla. LG or someone else will be getting all the profit on the car you sell.
-The money saved on ICE investment goes all EV platforms.
-Huge write down of your existing engine and transmission tooling and facilities, $10-15B

Your ICE cars will be dated and technically behind in 5 years selling in lower volumes or lower margins. (we could argue this will be the case even if investment continues.) Your putting the company in a direction to invest or write off $25-40B in capital for products that currently have less than 1% market share! Your dealers will not like you as you are taking away most of their revenue source in the service dept. They may not even help you sell the new EV cars.

This is a bet the company move. You either end up competing well or bankrupt. Most CEO's are pretty risk adverse and have a 5-10 year term. I doubt they will take on this level of risk. In 5 years they will still have 95% market share and be making money on ICE cars. The longer they wait the bigger the investment (and risk) becomes to meaningfully change direction.

This is why it is called the innovators dilemma.

You buy Tesla skateboards (or license and build them) and sign on for the Superchargers. Yes, there is the battery problem. No one said it would be easy.

Oh, I forgot. First you swallow your pride.