Short-Term TSLA Price Movements - 2016

[MartinAustin]

90-100 annualized production rate by the end of this year. Depending on how you see this, it's either a reaffirm of their guidance in Feb and May, or lowering it. So no production increase based on this

I see what you're saying.

I'm less confused now after having had a couple hours to think it through. I think this is a great thing. I can now say "this car starts at $65,000" (including the $1,000 off for referrals) which is the lowest cost I've ever been able to say since I got my own car. The base price was $69,900 when I got my P85 in 2013. This is another chapter of the long term process where the car gets better, and/or cheaper to buy. Since 2013 the base car has received at least ionizers, redesigned front end, improved parking sensors, automatic emergency braking, electromechanical brakes, alcantara roof, parcel shelf as standard. And guess what else? It has 15kWh extra capacity built into the car that you can unlock if you want it. The old 60kWh car certainly didn't have that. And this is nearly $4k CHEAPER than the car was in 2013. (options list now includes HEPA filters, AWD, autopilot, 2nd generation leather seats, etc.) It's going to bring more demand. How much more? Who cares if it's not a lot more, it's more. It's more bodies-in-white getting manufactured and more getting delivered.

There are two ways to look at this. One story is that Tesla's waiting list is shortening and their deliveries goals for the year is in trouble - maybe they're tracking towards 79,000 or something - or less - this assumes the factory is not in any trouble with manufacturing. Therefore they need to "pull a demand lever" and get more orders, and this 60kWh car is the second part of the two-pronged attack, the first being the recently resurrected referral program. These stimuli will hopefully bring deliveries back up into the guidance range.

An alternative story is that not only is Manufacturing "all set" to produce the 2016 annual guidance, but they are indicating they could do more if required. Tesla won't want to reduce the length of the waiting list, so they don't simply "turn up" Manufacturing just 'cos they can. They're pulling the two demand levers (referral program, 60kWh battery) in order to perfectly synchronise an increase in factory production with an increase in demand. Waiting list = not jeopardised, deliveries = increased. Expect deliveries at the high end of the 2016 guidance range - or exceeded!

One story that must be eliminated is that Manufacturing have telephoned in to say they are in trouble. We can say this because there is no way Tesla would be pulling demand levers if Manufacturing had called in to warn of trouble ahead... it would simply extend the length of the waiting list.

I'm excited to consider the more bullish explanation.

 

[geneclean55]

I see what you're saying.



An alternative story is that not only is Manufacturing "all set" to produce the 2016 annual guidance, but they are indicating they could do more if required. Tesla won't want to reduce the length of the waiting list, so they don't simply "turn up" Manufacturing just 'cos they can. They're pulling the two demand levers (referral program, 60kWh battery) in order to perfectly synchronise an increase in factory production with an increase in demand. Waiting list = not jeopardised, deliveries = increased. Expect deliveries at the high end of the 2016 guidance range - or exceeded!

One story that must be eliminated is that Manufacturing have telephoned in to say they are in trouble. We can say this because there is no way Tesla would be pulling demand levers if Manufacturing had called in to warn of trouble ahead... it would simply extend the length of the waiting list.

I'm excited to consider the more bullish explanation.

I read over on the model x delivery thread, that production was ahead by one week. Perhaps there are production efficiencies across the factory floor that Tesla are taking advantage of.

 

[MitchJi]

There are two ways to look at this. One story is that Tesla's waiting list is shortening and their deliveries goals for the year is in trouble - maybe they're tracking towards 79,000 or something - or less - this assumes the factory is not in any trouble with manufacturing. Therefore they need to "pull a demand lever" and get more orders, and this 60kWh car is the second part.

That scenario would also mean that they were lying at the SH Meeting and on the conference call when they said that demand is increasing. One thing I have learned is that if you think that Tesla is lying you are incorrect.

The only problem I have with the lower priced MS is that Tesla will probably sell more cars between now and the M3 launch, which will reduce my chances of getting the federal tax credit.

 

[hockeythug]

After nobody buys the thing like the first time they tried a 60 I'm sure they will go back to 70/75 being the minimum.

 

[SuryaDham]

IMO, I think that the MS60 is simple to explain. It allows a customer in Germany to purchase a 60kwh, get the government subsidy and the pay for the upgrade to a 75kwh, rather than paying up front for a 75 and not getting any subsidy.
BTW - IIRC the EUR60k subsidy threshold is pre tax and the web site prices include VAT. Not sure what the btw is in Germany for a car, but probably fixes the issue regarding the subsidy threshold.

Interesting thought. I checked it on Tesla's website. The price in germany for a base Model S60 is EUR 76.600, incl. 19% VAT = EUR 64,369.75 without VAT.
Still way above EUR 60.000, so I think the move is NOT tailored to germany.

 

[MartinAustin]

That scenario would also mean that they were lying at the SH Meeting and on the conference call when they said that demand is increasing. One thing I have learned is that if you think that Tesla is lying you are incorrect.

The only problem I have with the lower priced MS is that Tesla will probably sell more cars between now and the M3 launch, which will reduce my chances of getting the federal tax credit.

I'm certainly not in the camp that thinks Tesla is lying. I agree that demand is increasing... they're attempting to go from what was it, 52,000 deliveries in 2015 to 80-90,000 cars delivered in 2016. Even if they miss this year's guidance and only deliver 75,000, that would be a massive upwards bump for both demand and manufacturing.

I don't think Elon meant "demand is increasing so much that it's even increasing beyond our current guidance figures." He just meant, it's rising as a general comment on the global demand for the cars. I'm sure he will continue to say demand is increasing for quite a few more annual shareholder meetings.

 

[madodel]

IMO, I think that the MS60 is simple to explain. It allows a customer in Germany to purchase a 60kwh, get the government subsidy and the pay for the upgrade to a 75kwh, rather than paying up front for a 75 and not getting any subsidy. The German auto companies set the bar with the German government and Tesla is just playing the game. BMW et al knew that Tesla would have to offer a sub product if they wanted the subsidy. This way, they get to offer the full product just at a price that also gets the subsidy and then you pay the delta later.

MS60 + subsidy + (one week later) upgrade to 75 + upgrade to AP = happiness
MS75 + AP (but no subsidy) = lost sale to German auto company

BTW - IIRC the EUR60k subsidy threshold is pre tax and the web site prices include VAT. Not sure what the btw is in Germany for a car, but probably fixes the issue regarding the subsidy threshold.

Circumventing the legal barriers that the german automakers spent all that time and effort to target Tesla is going to give them a lot of agita. I'm sure their shills will be screaming mad about this. ;-)

 

[Fallenone]

That scenario would also mean that they were lying at the SH Meeting and on the conference call when they said that demand is increasing. One thing I have learned is that if you think that Tesla is lying you are incorrect.

+80% yoy is demand increasing. +60% yoy is demand increasing. +40% yoy is also demand increasing. Even +10% yoy is still demand increasing. But regarding to guidance, they mean a beat on the top, a meat on the bottom, a moderate miss, and a disastrous miss. With neither 2015 Q1 nor SH Meeting increasing guidance on production, I can only think they can't get the +60%-80% expected growth this year with the 75 kWh and 90 kWh so hey have to do the 60 kWh.

 

[Fallenone]

I see what you're saying.

I'm less confused now after having had a couple hours to think it through. I think this is a great thing. I can now say "this car starts at $65,000" (including the $1,000 off for referrals) which is the lowest cost I've ever been able to say since I got my own car. The base price was $69,900 when I got my P85 in 2013. This is another chapter of the long term process where the car gets better, and/or cheaper to buy. Since 2013 the base car has received at least ionizers, redesigned front end, improved parking sensors, automatic emergency braking, electromechanical brakes, alcantara roof, parcel shelf as standard. And guess what else? It has 15kWh extra capacity built into the car that you can unlock if you want it. The old 60kWh car certainly didn't have that. And this is nearly $4k CHEAPER than the car was in 2013. (options list now includes HEPA filters, AWD, autopilot, 2nd generation leather seats, etc.) It's going to bring more demand. How much more? Who cares if it's not a lot more, it's more. It's more bodies-in-white getting manufactured and more getting delivered.

There are two ways to look at this. One story is that Tesla's waiting list is shortening and their deliveries goals for the year is in trouble - maybe they're tracking towards 79,000 or something - or less - this assumes the factory is not in any trouble with manufacturing. Therefore they need to "pull a demand lever" and get more orders, and this 60kWh car is the second part of the two-pronged attack, the first being the recently resurrected referral program. These stimuli will hopefully bring deliveries back up into the guidance range.

An alternative story is that not only is Manufacturing "all set" to produce the 2016 annual guidance, but they are indicating they could do more if required. Tesla won't want to reduce the length of the waiting list, so they don't simply "turn up" Manufacturing just 'cos they can. They're pulling the two demand levers (referral program, 60kWh battery) in order to perfectly synchronise an increase in factory production with an increase in demand. Waiting list = not jeopardised, deliveries = increased. Expect deliveries at the high end of the 2016 guidance range - or exceeded!

One story that must be eliminated is that Manufacturing have telephoned in to say they are in trouble. We can say this because there is no way Tesla would be pulling demand levers if Manufacturing had called in to warn of trouble ahead... it would simply extend the length of the waiting list.

I'm excited to consider the more bullish explanation.

I hope the alternative is reality. But it would mean Tesla was giving false information when they said they 90-100k annualized rate. I really don't think the chance of them confident to massively increase production rate in just 10 days is great.

 

[DrJohnM]

Circumventing the legal barriers that the german automakers spent all that time and effort to target Tesla is going to give them a lot of agita. I'm sure their shills will be screaming mad about this. ;-)

Sure - but is this any different to purchasing a car and putting on a new set of expensive alloys and a wiz bang audio system. If Tesla sold the MS with cloth seats, steel wheels and no stereo but sold them as after market options, then the base price may also make the subsidy hurdle. The MS60 is a fully functioning car. I do not see what rules Tesla would be breaking.

 

[Ocelot]

I am firmly in the demand is lagging camp. If there were significant backlogs, there is zero reason to add another variant. People can spin things this way and that, but the simplest explanation is often the right one.

I also however believe it does not really matter, that much. Tesla needs to just 'hold on' until they ramp the model 3. I really, really, really hope, it is on time, or else there could be trouble. They do have significant cash-burn, and if they want to hold onto any credibility in terms of reputation, it (cash burn) needs to increase with the model 3, as no point in adding half a million cars, with no service readily available.

This is the reason the stock price is where it is at and not shooting past 300, 400. There are significant risks still ahead. It ALL lies with the timing and success of the model 3. If the 3 sours, Tesla sours. If the 3 blooms, tesla does as well.

 

[CanuckS#69]

FWIW, the Ontario incentive is capped at $75k and offers $14k off if under that mark, so there are markets where a 60 will offer greater incentives.

 

[ggr]

I don't understand all this back-and-forth about demand. I think that clearly, production has sped up a lot (which they said it would), so they are doing stuff that gets more orders to come in (which they said they could, any time). What are all y'all arguing about?

 

[dandurston]

My $0.02:

Consider:
1) In 2015 Tesla sold 50k Model S.
2) Tesla has long guided for 80-100k sales in 2016 with an S/X mix of somewhere around 50-70% model S. So that's 40-70k Model S in 2016.
3) Tesla saw a big increase (+45% YoY) in S orders in Q1.
Conclusion 1: Tesla can sell enough model S to meet these 2016 goals.

Consider:
1) Despite all the worrying about X sales, Tesla still has a large backlog since we've seen no deliveries of X75 and virtually no international deliveries.
2) Further, Tesla does not feature the Model X on their homepage, another indication they aren't trying to stimulate orders.
Conclusion 2: While Tesla is concerned with the margin on their Model X vehicles (prioritizing the 90D's), at the present time they are not concerned with stimulating the number of orders.

These conclusions are not consistent with a thesis that orders are a constraint for Tesla meeting their 2016 goals, yet the move to offer a lower priced S 60 is clearly going to increase orders. This is consistent with two (and maybe more) scenario's:
1) Tesla is struggling to produce the X and thus is shifting the 2016 balance further towards the S (e.g. 80% S).
2) Tesla has found a way to increase production beyond the stated goals.

Given that Model X's are now being delivered at a high rate, I don't think option 1 is nearly as likely as it would have seemed a few months ago. Tesla is producing the X at a good clip, and if X orders were an issue they'd stimulate X demand, not S. It's unlikely that S 60 orders carry a higher margin than X orders.

Thus I think it's most likely that Tesla has found a way to increase total production, even if it's just 10%, and currently prefers to fill that with S orders. I think they prefer S orders not because of margin but because it's a safer product to produce (less unknowns, less service center issues etc) and/or Tesla can only increase S production because of the specifics of their assembly lines (2 lines can do S, only 1 can do X).

Further, I think there's little merit to the idea that Tesla is doing this to meet local incentives. Tesla wouldn't offer a lower margin car everywhere just to increase orders in a few relatively tiny markets. If this was really attractive to Tesla they'd only offer the stripped model in those areas.

 

[TMSE]

I hope the alternative is reality. But it would mean Tesla was giving false information when they said they 90-100k annualized rate. I really don't think the chance of them confident to massively increase production rate in just 10 days is great.

Isn't 90-100k higher than the 80-90k guidance ?

 

[FredTMC]

Just a note. TM website shows new orders for today are delivered in July (not late June).

In other words, Q2 delivery numbers should be fine.

 

[X Yes?]

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

Were you expecting an announcement from Tesla when demand falls?

 

[Fallenone]

Isn't 90-100k higher than the 80-90k guidance ?

Production at 90-100k annualized rate vs deliveries of 80-90k this year is not that different.

 

[colettimj]

Isn't 90-100k higher than the 80-90k guidance ?

Lower range is 2016 annual delivery guidance, higher range is the rate at which they expect to be making vehicles at year end.

 

[eloder]

These arguments seem quite silly.

Tesla was doing just fine on margins when they were selling the S60 before. Add ~3-4 more years of gradual battery cost decreases, and you can be assured that they're still getting healthy margins even with a software-locked 75 kwh battery.

This doesn't mean that they're no longer demand constrained, just that they expect to no longer be demand constrained in the near-future. I think Tesla has done a very wonderful job balancing between demand and production constrained in the past year or so by pulling their levers slowly but surely.

If Tesla put through zero improvements or demand levers in the past few years to their cars, they could probably be running 30-35%+ profit margins--but they'd only be selling a tiny fraction of the cars. And as always, the more Teslas out there, the more awareness there is. The lower the entry price becomes, exponentially more buyers become interested (S70, Model 3, etc.). This is just a continuation of everything Tesla has been doing since day1 of the Model S, so if in retrospect you consider autopilot hardware, parking sensors, free OTA updates, etc. good decisions then you should also consider this a good decision.