Short-Term TSLA Price Movements - 2016

[Ugliest1]

Why wouldn't you think so? Apparently Tesla thinks they will have additional buyers at a price point of 66k with a 60kWh battery. And every buyer that goes with this and don't upgrade means Tesla losing a chunk of margin for these cars sold. Remember, the cost to Tesla for the 60 kWh and 75 kWh is the same.

Yeah... but, as said before, people who just can't afford the 75 and DO shell out for the 60 -- although the margin is less, it's still sold at a PROFIT, and it's to a new buyer who would not have otherwise bought. And, it's likely that a percentage (small perhaps) would upgrade later thus for those (few?) cars bringing the margin back up. I see it as a win-win.

 

[brantse]

Tesla needs to at least sell TWO S60 to compensate ONE X.

This is purely conjecture, as nobody outside of Tesla really knows this. That said, at the moment, I would have to say that this is flat out incorrect. There has to be well over $5k worth of R&D, technology, equipment, rework in every X; reducing the margin of an equivalent X over an S.

 

[FredTMC]

Selling a 60 with a 75 battery means:
- less battery types = savings on inventory cost;
- loss of revenue from "$3k loss" likely made up by extra options purchased -- many are willing to have less range but may want the other options -- and very likely the upgrade to 75 later (at a better margin).

As well as the other reasons, eg volume savings.

Good points. 60kwh base price is a great way to gets price sensitive customers "in the door". There are probably very few customers that buy a completely base model. Most will add options such as tech package, leather, roof, wheels etc

 

[Drax7]

In the mean time, the price of most commodities has dropped significantly in the
Last 3 years, giving tesla pretty good savings. Copper aluminum steel etc are
Way lower than back then, plus the new production line is way more efficient .
Marginal costs have dropped at a minimum 10%.

 

[WarpedOne]

This new 60kWh battery is so much better than the old one, that is not even 60 kWh any more, but 75 kWh.
Don't forget that when comparing roses and elephants...

The real question is, why limited 75 and not real 60?
Bad degradation of new chemistry?

 

[Johan]

Look guys, bottom line:

- software limited 75 makes for one less pack type to build: hardware wise only 75+90 which makes for more efficient manufacturing.
- much improved resale value for "60s" knowing they can be unlocked. Eventually most of not all of them will get unlocked - basically you generate sales by addressing a wider market but delay part of the revenue until later. If sold as CPO cars by Tesla all will be unlocked (as with "40s")
- how many people are eagerly awaiting Model 3, just recently realizing they too could own a Tesla? Now much more likely they will stretch for a "60".
- increased sales and sustained demand for continued growth in production well above 20 MMCPM gets them better margins on all cars, all the way from a bare bones "60" (which admittedly will have probably the worst profit margin) to a fully speced P90DL (the cash cow).

(*MMCPM= Millimeters of car per minute, a measure suggested by Elon when thinking about production capacity. 2000/week equals roughly 15-16 MMCPM.)

 

[glhs272]

This new 60kWh battery is so much better than the old one, that is not even 60 kWh any more, but 75 kWh.
Don't forget that when comparing roses and elephants...

The real question is, why limited 75 and not real 60?
Bad degradation of new chemistry?

Good question. My guess:
1-As stated, Production efficiencies. To go back to a "real" 60, they would need a new unique module type.
2-A "fake" 60 (using a 75 battery) is a better battery than a "real" 60, in that it will not be fully cycled and it gets better supercharging performance. Won't have the awful taper at the top end of the charge.

 

[esk8mw]

Look guys, bottom line:

- software limited 75 makes for one less pack type to build: hardware wise only 75+90 which makes for more efficient manufacturing.
- much improved resale value for "60s" knowing they can be unlocked. Eventually most of not all of them will get unlocked - basically you generate sales by addressing a wider market but delay part of the revenue until later. If sold as CPO cars by Tesla all will be unlocked (as with "40s")
- how many people are eagerly awaiting Model 3, just recently realizing they too could own a Tesla? Now much more likely they will stretch for a "60".
- increased sales and sustained demand for continued growth in production well above 20 MMCPM gets them better margins on all cars, all the way from a bare bones "60" (which admittedly will have probably the worst profit margin) to a fully speced P90DL (the cash cow).

(*MMCPM= Millimeters of car per minute, a measure suggested by Elon when thinking about production capacity. 2000/week equals roughly 15-16 MMCPM.)

Not to mention, for many of us, once you go electric you never go back. The more people who experience a Tesla (by buying or even just test driving because now it's a more affordable option) are more likely to become lifelong customers. Those stretching for a 60 now can grow with the brand and buy more (and more expensive) Teslas later. They aren't a one time purchase for most of us. The upgrade bug bites eventually.

 

[JohnSnowNW]

- much improved resale value for "60s" knowing they can be unlocked. Eventually most of not all of them will get unlocked - basically you generate sales by addressing a wider market but delay part of the revenue until later. If sold as CPO cars by Tesla all will be unlocked (as with "40s")

Came in here to post this very thing. Delaying revenue ≠ to a loss on each sale. Tesla obviously believes enough people will unlock the vehicle in the future.

 

[glhs272]

I know if I could upgrade my 60 to a 75 right now, I certainly would.

 

[SW2Fiddler]

Came in here to post this very thing. Delaying revenue ≠ to a loss on each sale. Tesla obviously believes enough people will unlock the vehicle in the future.

Agreed. Four-figure In-App Purchases for the cars... What's not to like?

 

[Fallenone]

OK I know I've probably been pretty annoying so far today. Because I am pretty disappointed by the 60 kWh model news. Here's a summary of my thoughts. I earnestly welcome solid counters to my reasoning.

Part A, the facts and near-facts.
1. Tesla is selling more and more cars on a yearly basis. And I have no doubt they will sell more than 50k they did last year.
2. A lower priced product will increase overall demand of their product lines.
3. The 60 kWh model is in fact a software limited 75 kWh model, therefore, costs for Tesla making those are same. If production rate is significantly higher, than the cost would be lower by a certain amount (unclear how much), but this doesn't change the fact the costs are still the same.
4. Battery cost has been falling.
5. Gross margin on Model S haven't improved since it hit ~25%.
6. Tesla wants to maximize profit, which is a combination of units sold and ASP.
7. Tesla wants to meet guidance.

Part B, Tesla's own guidance and near-guidance.
1. 2016 delivery 80k-90k. Reaffirmed in April and May for at least three times.
2. 2016 H2 delivery 50k, per Q1 ER letter.
3. Annualized production rate at 90k-100k by the end of this year, per shareholders meeting 9 days ago.
4. Cells will start being produced at GF by the end of this year and would lower their cost.

Part C, reasonable speculations (at least I think so).
1. Production rate has been lower than 2000/week for the most part of 2016 H1. Most likely around 1200/week in Q1 and 1450/week in Q2.
2. Based Model 75 has a gross margin of 22%. The cost of it would be $62.3k. The new base 60 kWh sold would have a mere 6% gross margin if customer choose not to upgrade it to 75 kWh. Even considering all the options and assuming all options are having 100% margins, the gross margin for a maxed out 60 kWh is only 16.6%. This is still lower than the base 75 kWh while carrying a higher price (82k vs 76k).
3. Most of the increase in units sold, compared to not introducing the 60 kWh, won't upgrade to 75 kWh, otherwise they would have bought the 75 kWh.
4. Tesla is making much less money on these increased units sold caused by this move.
5. No significant cost decrease would happen for the most part of H2 this year.

So considering everything here, I can't see this 60 kWh move being bullish on the stock. I think it's for whatever reason, Tesla can't hit their 80k guidance in deliveries, and have too lower the price and margins they get by having this 60 kWh out there to increase demand. Especially if you think B3 above. This is a rare case when we see/hear they give information on production expectation so close to a price change. The only silver lining I can see here, is H2 their production rate will be significantly higher than H1, and the cost would be lower. However, this only applies to the cost for the parts, which makes up no more than 2/3 of their costs IMO. Labor would be the same as they increase workers employed (remember the job fair in May?). Tooling costs would be the same as they account it on a per car basis so producing slow or faster will not change the tooling cost. To make the 60 kWh as profitable as the 75 kWh (22% margin), they need to cut cost in parts by 20%.

Wait I think this is not super far-fetched if they increase production from 1350/week to 2000/week, also having the Model 3 demand tantalizing suppliers for greater discounts.

Never mind my rambling. We might see a boost in margins this year.

Buy buy buy!

 

[Johan]

Came in here to post this very thing. Delaying revenue ≠ to a loss on each sale. Tesla obviously believes enough people will unlock the vehicle in the future.

 

[FANGO]

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.

I know I'm a few pages late on this, but I just want to get it in there. People who are wondering why, here you go. Tesla runs retail shops where they talk to customers, and these customers tell Tesla what they want. If Tesla doesn't get a sale because of whatever reason, that goes into the system and they can track that - this is how CRM systems work in retail these days. If there's enough customers who say "I wish there was a little bit cheaper one" or "I don't need that much range, can't I get a cheaper one for less money" (<---this is me) or anything along those lines, then Tesla will log that, and it seems they've had enough customers who've said that, maybe especially recently with the Model 3 introduction and more price-sensitive customers showing up than before. It's really not that much of a puzzle. I'm a bit concerned about the lack of a 60kWh native battery (esp since part of the reason I'd want less battery is to get less weight in the car), but if Tesla figured that the cost of extra cells + possible upgrades after-the-fact (by first or second owners) was lower than the cost of building a separate battery pack on the line, then I guess that's fine.

 

[FANGO]

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.

So, let's extend this mentality to the Model 3. Why would Tesla introduce the Model 3, a much cheaper model? Well obviously they're doing it because they have a demand problem, they can't sell enough cars to keep up their growth trajectory, right?

So if you frame it your way, it almost sounds correct. But if you think about it a little more, this is really irrelevant. Companies match demand to supply as best they can, because excess of either is no good. So if you're trying to increase supply by building more cars (especially by 50% per year), you need to get more people to buy those cars somehow - word of mouth, advertising, good reviews, new models, lower price points, or whatever else. This does not mean you have a "demand problem" where you are building cars that you can't sell. The phrase "demand problem" or "falling demand" or anything of the like suggests that Tesla is idling factory time or leaving cars on lots and can't think of any way to get rid of them. I do not see this as being the case.

 

[Fallenone]

So, let's extend this mentality to the Model 3. Why would Tesla introduce the Model 3, a much cheaper model? Well obviously they're doing it because they have a demand problem, they can't sell enough cars to keep up their growth trajectory, right?

So if you frame it your way, it almost sounds correct. But if you think about it a little more, this is really irrelevant. Companies match demand to supply as best they can, because excess of either is no good. So if you're trying to increase supply by building more cars (especially by 50% per year), you need to get more people to buy those cars somehow - word of mouth, advertising, good reviews, new models, lower price points, or whatever else. This does not mean you have a "demand problem" where you are building cars that you can't sell. The phrase "demand problem" or "falling demand" or anything of the like suggests that Tesla is idling factory time or leaving cars on lots and can't think of any way to get rid of them. I do not see this as being the case.

The key difference here is the cost of Model 3 is much lower, pricing it much lower is nothing but acceptable and expected. But the cost for the new 60 kWh cost is the same as the 75 kWh. So it's essentially a discount (pretty deep discount) on the same product on the cost side. You can't compare it with the Model 3.

 

[CButterK]

Question for anyone that can post link to a document. The difference between current 90 pack vs, the 75(or 60) pack, is it strictly reduction of number of cells going into a pack or is there more to it? And same thing with the old 85 pack vs 60(or 40). Thanks in advance!

 

[larmor]

I know I'm a few pages late on this, but I just want to get it in there. People who are wondering why, here you go. Tesla runs retail shops where they talk to customers, and these customers tell Tesla what they want. If Tesla doesn't get a sale because of whatever reason, that goes into the system and they can track that - this is how CRM systems work in retail these days. If there's enough customers who say "I wish there was a little bit cheaper one" or "I don't need that much range, can't I get a cheaper one for less money" (<---this is me) or anything along those lines, then Tesla will log that, and it seems they've had enough customers who've said that, maybe especially recently with the Model 3 introduction and more price-sensitive customers showing up than before. It's really not that much of a puzzle. I'm a bit concerned about the lack of a 60kWh native battery (esp since part of the reason I'd want less battery is to get less weight in the car), but if Tesla figured that the cost of extra cells + possible upgrades after-the-fact (by first or second owners) was lower than the cost of building a separate battery pack on the line, then I guess that's fine.

Along these lines, i have to agree with learning about what the customer wants. I had been told by my friend, who does many startups, 'know the customer and you can own the business.'

 

[techmaven]

What just happened? It was mid-233's and then boom, 1 in a blink.

 

[Sparky]

Today's SP does not seem to be reacting to this news (or people haven't heard). But, I just got an email expressing great interest in this S60 from a co-worker who reserved a Model 3 and feels the long wait sinking in. She was also concerned about the $7500 credit being gone. Seems very jazzed that she may be able to get into a Tesla 2 years ahead of time. Just sent her my $1000 referral credit. Oh no, even lower margins!

Edit: Just saw techmaven's post and then checked and saw -$5! Sooo, maybe this news is is affecting SP.