2016 in total yes I think so. Probably not for Q1. If they miss the total for 2016 I don't think matters as long as they hit the 1000 a week target. Once they reach full production the past will be forgotten.
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2016 in total yes I think so. Probably not for Q1. If they miss the total for 2016 I don't think matters as long as they hit the 1000 a week target. Once they reach full production the past will be forgotten.
CyberDutchie
Active Member
For years, we have had high expectations for what the X could deliver in terms of performance, safety & functionality with one caveat: do the doors actually work? Doors are stubborn things. You just can’t sell a car without ‘em. Is this a buying opty or sign that things need to change? Perhaps both.
5 key thoughts on the Model X delays and why this is so important:
1.No official auto mag test drives of the X is unusual. We believe a Model X test drive and full performance review would easily be one of the most anticipated and important auto reviews of 2016. At the same time, we can imagine that Tesla would have a very strong interest in having the Model X reviewed by the widely read motoring press as a marketing conduit for the vehicle’s capabilities to prospective customers. Hundreds of Model X vehicles are believed to have been delivered (with 208 delivered in 4Q alone) which the motoring press could conceivably have access to. Besides brief test drives at company sponsored driving events, the fact that we cannot find one magazine review of a car in the field is surprising to us. The magazines had even driven privately owned LaFerraris within 3 months after launch.
2. We suspect the biggest problem remains those highly ambitious apertures. We first aired our concerns about the Model X's double-hinged falcon doors in the fall of 2014. Please see our note from Nov 17, 2014 . Our discussions with OEMs and manufacturers of doors in the supplier community suggest a number of engineering challenges with such doors including manufacturing and reliable functionality throughout the long-term life of the vehicle. Even Elon Musk acknowledged the execution challenges on the doors. From the 4Q14 conference call: “Getting that right and making sure it works really well isn't a gimmick but is a fundamental improvement in utility and aesthetics for the cars. It's extremely difficult. There's a reason that other people haven't done this.” On the 2Q15 conference call, Mr. Musk suggested that the falcon wing doors were probably not a critical path item for the Model X anymore and instead alluded to challenges with the 2nd row seats.
3. The potential impact on cash flow could be more significant than the market has anticipated and the market timing potentially compounds the issue. In our recent note and price target reduction to $333 from $450, we factored in a greater level of cash consumption into our earnings model in part to factor in higher levels of launch-related engineering expenses to ensure a high quality ramp of the Model X sufficient to deliver on our estimate of 15k units in 2016. We note that our forecasts do not include a full redesign of the doors and related structural re-engineering of the vehicle body that could accompany an alternative door design. Tesla has yet to suggest the need for a contingent design of the Model X doors. Our current forecasts are based on Tesla delivering a safe and reliable function of the current door design in the Model X. If Tesla is unable to deliver the safe and reliable function of the falcon doors in the current design (at a reasonable manufacturing and warranty cost) we would be prepared for alternative design plans and greater levels of spending. The company’s comments on this issue during the 4Q conference call will be important.
4. A test of leadership and culture. It is no secret that Tesla’s business ambition and corporate identity are infused with the leadership and charisma of its CEO. It is not unusual for young and smaller companies to have much of their corporate culture dependent upon its chief leader. However, Tesla is no longer a small start-up. It employs 15,000 people around the world and is spending the better part of $3bn of combined capex and R&D annually to affect change on the transportation and energy industries. While there have been various changes in the team over the years (new CFO Jason Wheeler joined last year), it appears that the company’s management/operational structure has not changed fundamentally since the IPO and that much of the engineering and strategy of the company flows in some part directly through Elon Musk. We believe Mr. Musk is very much in the trenches and at the front- line of many of Tesla’s detailed operational and design decisions at the product and line level (including items like door design). Mr. Musk is tasked with such responsibilities while also running the rocket company SpaceX which is believed to be an even greater draw on his time in the average week. How companies adapt their management structures to differing stages of business lifecycle can have a lasting and significant impact on firm value.
5. Raises timely questions over the strategic future of the company.
Should Tesla be making its own car as opposed to using a contract manufacturer? Should it be engaging with strategic partners? These are the two biggest questions we are beginning to field from investors in recent weeks. We don’t have the answers. Anyone can ask the question.
Is this a buying opportunity for Tesla shares? We think so, but this is contingent upon the company addressing any potential engineering challenges without distress to the balance sheet that would compromise the firm’s ability to execute on its bigger vision implicit in the market’s valuation of the equity. It may be difficult to imagine that just one delayed product (even if it added several hundreds of millions of costs to fix or potentially re-engineer) could permanently impair the long term growth prospects of this company. However, one cannot rule out the potential for seemingly surmountable issues to materially impact the trajectory of the company’s investment and growth plans in its very broad array of projects (Model 3, autonomous technology, batteries/energy storage, possibly new mobility concepts), particularly if accompanied by a broader environment of heightened market risk. In our opinion, it is critical that Tesla be as transparent as possible with the manufacturing challenges that may be facing the Model X including vectors such as timing, cost and potential re- engineering solutions if necessary.
All great companies can look back at their history to a time of challenge, how the challenge was met, what needed to change... which doors to open and which to keep closed in order to move forward. As difficult as the challenges on the Model X may seem to Tesla today (and we do believe they are serious), might the company one day look back at this challenge as one of those formative moments in its journey that it needed to confront in order to trigger changes in its strategy that enabled it to be a truly great, sustainable and highly-valued company? Perhaps. All auto companies face big challenges in today’s market – this is Tesla’s. In our view, Tesla’s role in the development of sustainable transport is far greater than any one product line or double-hinged door. In reiterating our Overweight rating on the company, while openly recognizing and addressing the execution risks to the story, we believe the company will manage through this difficult time and be afforded the opportunity to have a significant role in recasting of automotive business model.
chickensevil
Active Member
I'm sorry, I wasn't at all suggesting that it was actually going to happen. I was just pointing out that fear of bankruptcy and/or a dire *need* to raise capital is overblown. Which is why I was stating that even *if* the X flops (which it won't...) then they can continue to push through on just the S.
Gerardf
Active Member
All depends on how much MS production they keep running. To me it looks like that keep producing MS at top speed and are reserving a high percentage of production for the MX in the coming months (see website wait times thread).
All speculation from the outside of course until the Q4-ER, although I feel the credit Suisse reports gives some hints.
Thumper
Active Member
Yeah, although if the X flops I think they actually do have a serious problem
. But the product has already proven itself in terms of consumer reception and quality.Stifel's James Albertine maintains Buy rating with PT of $325, says company's long-term strategy outweighs short-term headwinds.
http://www.benzinga.com/analyst-ratings/analyst-color/16/02/6226607/stifel-likes-tesla-but-warns-of-few-catalysts-to-turn-be
http://www.benzinga.com/analyst-ratings/analyst-color/16/02/6226607/stifel-likes-tesla-but-warns-of-few-catalysts-to-turn-be
I still think many - including Jonas here - have it wrong about the X ramp problems.
I think it is expected and normal to have this problems when you ramp up any car model and it is not unique to X.
What is unique to X is that deliveries to customers and production of customer vehicles started a quarter earlier than normal and that in turn gives the impression of a problematic launch as they have to fix those problems after deliveries has started.
The only thing that will turn bears into bulls is financial results. So the X ramp needs to happen and it needs to show in a quarterly report. This won't happen before the report for Q2 in beginning of August.
Another event that can turn bears into bulls would be Model 3 reveal and reservations.
I think it is expected and normal to have this problems when you ramp up any car model and it is not unique to X.
What is unique to X is that deliveries to customers and production of customer vehicles started a quarter earlier than normal and that in turn gives the impression of a problematic launch as they have to fix those problems after deliveries has started.
The only thing that will turn bears into bulls is financial results. So the X ramp needs to happen and it needs to show in a quarterly report. This won't happen before the report for Q2 in beginning of August.
Another event that can turn bears into bulls would be Model 3 reveal and reservations.
chickensevil
Active Member
Thanks for posting this. I wanted to call out these two parts specifically as I think this is likely to be key to a good Q&A session during the ER. Full disclosure is something that the company has always skipped around and I think things would likely be better off if they were more open and honest about things. As a strong believer in the company, them being straightforward with investors is something that would be great. They could afford to be less clear when everything was going great. Now that we have had various troubles over the past year or so with getting things ramped up, they need to start being more open about the issues and how that will impact the bottom line. Even if this means the price drops further after the ER, giving realistic and clear information is going to be key to restoring investor confidence.
CyberDutchie
Active Member
Tesla should perhaps announce an 8-year warranty on the FWD. Like they did for the battery when people doubted the longevity of those batteries, when the Model S just came out. Doubts are being seeded for example in this MS note.
dreamingof3
Member
I really x100 hope you are correct. I thought there was a zero chance we got a 35% haircut in one month too.
This is IMHO worst case scenario what we are witnessing today.
Doors were problematic from day one.
All of You remember when they didn´t fully close even back then at the prototype shows.
FYI that was 2012 (!)
Now, four years later this problem still seems completely unsolved.
That is not only terrible management, that is amateur nightmare.
Dan Galves, who was always more of a "medium" than a tough analyst (even in his Deutsche Bank days)
finally revealed the status quo.
A half dead product sitting on the shelves waiting for a engineering solution.
The picture is now easy to predict.Orders will be cancelled, probably class action lawsuits due to misleading stockholders, and cash problems (supercharger already on hold).
The seats were only a "fog bomb".
Show off doors killed the DeLorean, halted the Mercedes SLS, broke the Renault Avantime (and in the aftermath lead to a terrible fire which killed Matra, their manufacturer).
One day it will be solved why it took this company 4 years to reveal the reason why.
I hated Bob Lutz and his snippiness, now I see he had a reason due to experience.
For now I´m just sad.I feel betrayed.
Gerardf
Active Member
I do not think that is a correct statement. Quite many MX are already in the field and I do not see FWD horror stories.
Door production not-so-easy-to-ramp-up. Maybe.
But
'totally unsolved'.. nope.
'half dead product' : no way.
.. I am not going to spend time on some of the other impulsive remarks.
I strongly feel this is stress in the general markets and some parties taking full advantage of that negative macro leverage.
I can think of far worse case scenarios. Actually if we were sitting at $210 right now which would be entirely possible in a different macro environment I don't think people would even be as worried about this.
mmd
Active Member
In one of the ERs a while ago, Adam Jonas asked Elon about FWD, and Elon said "our customers want it". But I've never seen any survey or anything on that. Seems many customers are actually canceling just because of these ostentatiious doors, and some are afraid it won't fit in their garages. Frankly, Tesla's stubbornness to stick with the FWD is amazing.
If these doors problems really turn out to be unsolvable or costly, wonder what the cost will be to redesign with regular doors. Is that even possible? The range may be lower due to shape change, but it could have more utility, IMO.
PS: I hope it doesn't come to this, but I'm trying to find the worst case scenaior for this problem.
ev-enthusiast
Active Member
Gerardf
Active Member
Emotions running high here. Lets stay with facts...
Can you point me to any alarming number of reports of people who have received their Model-X and report alarming or major issues with the doors ?
To my opinion: whatever problems their might be, they are problems ramping production of the doors, and all signals and reports are that these are solved ( at worst or being solved)
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Would love to see a few questions focused on the company's structure, i.e. Why doesn't Tesla have a COO? Unfortunately conference call will be bogged down explaining FWD issues & "razzle dazzle" Autopilot talk of the future.
ev-enthusiast
Active Member
It looks like people still do not get it.
FWD are a design error.
There are no alarming reports of people who have received their Model-X and report alarming or major issues with the doors cause there are almost no X DELIVERED!
Presenting a plan to introduce traditional doors would only reduce risk.
Even designing traditional doors takes some time!
With the current issues I could imagine we see sub $100 prices this month.
One big issue is mojo is totally gone and shorts laugh at TSLA and bears get stronger and stronger.
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