Short-Term TSLA Price Movements - 2016

[Johan]

Well, I have no reason to believe that the margin guidance they gave during the Q1 ER - 25% on MX, approaching 30% for MS by the end of 2016 - did not already include the introduction of 75kWh/60kWh software limited option.

And then there's a $9k unlock fee. Good margin on that. How many will unlock after 1 year? After 3?

 

[W84M3]

I think this just moves the margin needle a little earlier than it otherwise would have. My guess is there is more margin on a barebones S 60 than the initial wave of Model 3s will have. If this converts some of those surplus model 3s and keeps the demand pipeline full then I can't see there being a huge reaction to a 1-2% dip in margin. Do you really think 30% of new sales will be the 60?

Converting Model 3 reservations? In EU with prices of 75k+ EUR for barebone S60? Not a chance.

This only makes sense if

a) Production line of S can pump out much more S'es

b) 75 pack is much cheaper

 

[NOLA_Mike]

I hate to say it but Tesla is now officially demand constrained

Why otherwise sell a 75 with a $9000 discount as a 60.

Perhaps with the increased factory production capacity they are or foresee they will be. And, perhaps with this move they no longer are. It's all a guess at this point...

 

[vgrinshpun]

So many possible reasons. Because they thought their incentives program would have been better at bringing out demand. Because they thought the model X would ramp sooner, generating more buzz. Because they hoped the refresh would have been more effective in bringing out demand. Because they had hoped to enter more new markets sooner. Because they had hoped to roll out sales supporting infrastructure in countries sooner but red tape prevented it. Etc...

All of these reasons assume that something went in a way they DID NOT expect. I am trying to balance it by showing that it could also be possible that this introduction of additional variant is a planned event, not a reactionary one...

I am a bit confused? Are you not basically saying the same thing : that they currently have spare production capacity? Just you are not sure about if this was already the case earlier on. Fair enough, it's not so important going forward.

Well you indicated that that was your "longer standing argument", meaning that they had spare capacity in the past. I do not believe it is true. They have, or about to have additional capacity NOW, and that is the reason for introduction of additional variant today.

Panasonic just communicated in an investor event that cell production in the Nevada factory will only start in 2017.

Do you have a link? Then, if my theory is correct, 100kWh introduction will have to wait until the beginning of 2017.

 

[MitchJi]

Panasonic just communicated in an investor event that cell production in the Nevada factory will only start in 2017.

For TE, not for cars

As I explained above, this is just semantics. When I say "real life testing" I meant testing in the wild on customer cars. This does not mean that a complete full blown design/production/product validation/testing is complete before the introduction of the new cells in the customer cars.

I will be completed before they introduce new cells into the cars.

You can absolutely count on that.

 

[Krugerrand]

And don't fully understand it yet.

Tesla is bringing back the lower-priced Model S — here's why

Not sure why the confusion (by anyone). The article clearly states why they've reintroduced the 60 - customer demand/enough people have been asking for it.

Maybe it's that people forget that demand for any product isn't static that's got people confused? The 60 was popular enough that Tesla made them for a couple years. Then Tesla went to the 70 and then the 75. Even though Tesla kept the pricing under control, it still increased.

During all this time with the bigger batteries, more and more Teslas have hit the road. Model 3 has been shown. Point being, more and more people have become aware of Tesla, test driven one etc... every single day. Clearly a big enough group of those people want a slightly more downstream Model S. Voila, 60 returns (but with the ability to be upgraded to a 75, if/when someone changes their mind OR the car is sold to someone else used and that person wants more capacity) - which brings me to the next point - more Model S's on the road, more (lesser expensive) Model S's available for purchase used, more Model S's are bought, more Model S's on the road, more (lesser expensive) Model S's available for purchase used...

It's all good peeps.

 

[Dennadyne]

Call me crazy but the only way this is a bad thing is if it cannibalizes more 70/75 sales than Model 3s, is that off base?

 

[Renaud]

I hate to say it but Tesla is now officially demand constrained

Why otherwise sell a 75 with a $9000 discount as a 60.

Not to start again the demand discussion, I officially disagree: when we'll see the growth stop, i.e. when a few quarters in a row sales are flat/decreasing, all markets are explored, heavy marketing is performed, then I will consider thinking that they are demand constrained. In the meantime, no

 

[vgrinshpun]

.


I will be completed before they introduce new cells into the cars.

You can absolutely count on that.

I am. Come on, we are saying the same thing.

Step 1. complete validation/design of 20700 based battery packs.
Step 2. introduction of 20700 based battery packs into MS/MX. De-risking of M3 as 20700 based battery packs will have been used in customer cars BEFORE introduction of M3

 

[EinSV]

How does it fit? If they had this extra capacity, why didn't they introduce 75kWh/60kWh software limited variant before?

My thinking is that they did not have spare capacity up to this moment as BIW Line #1 (old) is maxed at nominal 1200cars/week. BIW #2 was dedicated to MX only, and could not accommodate additional blended MS until the MX ramp-up is complete. Now, as they are completing the MX ramp-up, they are ready to start blending additional MS on BIW #2. Since overall assembly line can be ramped up to 2500 cars/week, this gives them flexibility to take production above 2000 MX/MS per week - up to 2500 cars/week.

I think this is it. Tesla is planning to increase S/X production above the 100K/year rate in 2017 if not sooner.

Similarly, new Samsung cells for TE may be designed to allow TE sales to ramp more quickly before full GF cell production is on line. Pricing allows Tesla to generate significant margins even without GF cell production.

Increasing production of S/X and bringing as much TE income in the door as soon as possible is how they minimize risk for a future cap raise for Model 3.

 

[Spidy]

So many possible reasons. Because they thought their incentives program would have been better at bringing out demand. Because they thought the model X would ramp sooner, generating more buzz. Because they hoped the refresh would have been more effective in bringing out demand. Because they had hoped to enter more new markets sooner. Because they had hoped to roll out sales supporting infrastructure in countries sooner but red tape prevented it. Etc....

+1
That's exactly how I see it. Tesla also seemed to have done more marketing recently. More tweets, youtube videos etc. But overall all those things combined did not increase demand to a level Tesla is happy with to operate over the next months.

I can think of zero reasons why you would introduce this version if your order books were already filled to your satisfaction.

 

[Krugerrand]

And then there's a $9k unlock fee. Good margin on that. How many will unlock after 1 year? After 3?

Selling feature on the used market.

 

[Vitold]

And then there's a $9k unlock fee. Good margin on that. How many will unlock after 1 year? After 3?

Being able to upgrade via software in the future will increases resale value of the car. Potentially this new battery will also charge faster, last and longer decreasing failure rates.

Who knows, maybe in the future, to monetize extra capacity, Tesla will come out with vacation mode where you can lease extra range when you need it.

Overall Model 3 reservations told us that there's high demand for cheaper Tesla and that people are fine with lower range. MS60 makes a lot of sense as it tries to reach some of that demographic.

Upgradable 60kWh option may also increase margins making some buyers opt for more options up-front while still offering a chance to upgrade to longer range later.

 

[Fallenone]

Hate to say it but I agree this move is a strong indication of falling demand. Makes no sense to reintroduce lower price model unless they can't keep up the growth projectory.

 

[colettimj]

Not sure why the confusion (by anyone). The article clearly states why they've reintroduced the 60 - customer demand/enough people have been asking for it.

Maybe it's that people forget that demand for any product isn't static that's got people confused? The 60 was popular enough that Tesla made them for a couple years. Then Tesla went to the 70 and then the 75. Even though Tesla kept the pricing under control, it still increased.

During all this time with the bigger batteries, more and more Teslas have hit the road. Model 3 has been shown. Point being, more and more people have become aware of Tesla, test driven one etc... every single day. Clearly a big enough group of those people want a slightly more downstream Model S. Voila, 60 returns (but with the ability to be upgraded to a 75, if/when someone changes their mind OR the car is sold to someone else used and that person wants more capacity) - which brings me to the next point - more Model S's on the road, more (lesser expensive) Model S's available for purchase used, more Model S's are bought, more Model S's on the road, more (lesser expensive) Model S's available for purchase used...

It's all good peeps.

The new 60 <> the old 60. This one has AP hardware. That alone would increase demand compared to the original.

 

[EinSV]

Not sure why the confusion (by anyone). The article clearly states why they've reintroduced the 60 - customer demand/enough people have been asking for it.

Maybe it's that people forget that demand for any product isn't static that's got people confused? The 60 was popular enough that Tesla made them for a couple years. Then Tesla went to the 70 and then the 75. Even though Tesla kept the pricing under control, it still increased.

During all this time with the bigger batteries, more and more Teslas have hit the road. Model 3 has been shown. Point being, more and more people have become aware of Tesla, test driven one etc... every single day. Clearly a big enough group of those people what a slightly more downstream Model S. Voila, 60 returns (but with the ability to be upgraded to a 75, if/when someone changes their mind OR the car is sold to someone else used and that person wants more capacity) - which brings me to the next point - more Model S's on the road, more (lesser expensive) Model S's available for purchase used, more Model S's are bought, more Model S's on the road, more (lesser expensive) Model S's available for purchase used...

It's all good peeps.

I agree. When all of a sudden you have about 400,000 people impatiently waiting in line for the Model 3, it's a good bet that a lower priced Model S might get a few of them to jump to a Model S rather than waiting. The landscape is different than it was a few years ago.

 

[Krugerrand]

Hate to say it but I agree this move is a strong indication of falling demand. Makes no sense to reintroduce lower price model unless they can't keep up the growth projectory.

Why must people always think there's some ulterior motive instead of just taking what the company has said at face value? Is everything a conspiracy? Tesla SPECIFICALLY said in the article why they reintroduced it. CUSTOMERS WANT IT.

Per Tesla since the beginning of Model S time: Demand is not a problem.

 

[vgrinshpun]

+1
That's exactly how I see it. Tesla also seemed to have done more marketing recently. More tweets, youtube videos etc. But overall all those things combined did not increase demand to a level Tesla is happy with to operate over the next months.

I can think of zero reasons why you would introduce this version if your order books were already filled to your satisfaction.

My view is that they introduced additional variant because they now can increase total MS/MX output to MORE than 2000cars/week. I do not believe they needed this new variant to hit/maintain 2000 cars/week. There is just no evidence to support this point of view.

 

[schonelucht]

Do you have a link? Then, if my theory is correct, 100kWh introduction will have to wait until the beginning of 2017.

Slide 16 on the presentation material of the event. Panasonic was a bit late in posting it on their website which may be why it hasn't been very well known up to this point. You also need to take into account total production to shipping time which is 1 month for current Panasonic cell production. They did not disclose if the gigafactory would lower that but if it doesn't then we should see packs with Gigafactory produced cells at the earliest near the end of the first quarter.

 

[MitchJi]

I am. Come on, we are saying the same thing.

Step 1. complete validation/design of 20700 based battery packs.
Step 2. introduction of 20700 based battery packs into MS/MX. De-risking of M3 as 20700 based battery packs will have been used in customer cars BEFORE introduction of M3

We are not saying the same thing. I am saying that the derisking you describe as important or as necessary (step 2) is completely superfluous. If Tesla is competent it will be accomplished by what you describe as step 1.

In other words what you describe as step 2 won't happen in the real world. That will only occur in your mind.