Denmark also has a huge ICE disincentive. Actually, the Denmark case is pretty much equal to Norway, with the crucial difference that Denmark does not exempt EVs from 25% VAT. Being exempted from 185% import tax still lowers their relative price point by 60% or so, which is huge of course. Unfortunately, Denmark is no bigger than Norway (5 million inhabitants). But demand from these countries will be important for Tesla.
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Having digested the Q1 announcements and today's SEC filing, I believe that Tesla will intentionally stay demand constrained for the coming quarters. In the SEC filing, they emphasize the importance of now stabilizing on a production rate of 400/week, and perfecting that to increase margins.
This makes sense to me. It is hard to achieve high efficiency if your production rate keeps fluctuating. You want there to be a routine every week - the same number of components coming from the various suppliers, the same number of people showing up to work regular hours, the same cadence of vehicles moving through the various stations, the same number of vehicles going through various stages of delivery. This is the only way to achieve 25% margins in Q4.
The alternative would be to try to vary production to match demand, i.e. using temps and overtime, and asking suppliers to ramp up. However, this would lead to higher unit costs both within Tesla and at suppliers. Getting lower prices from suppliers' efficiency improvements is a key part of getting to 25% margins.
I am sure that they are in parallell planning for a step-change in production rates. What I guess they will want to wait until they have "probed the depths of the demand" (or whatever the Elon quote is). Once they have good certainty that the demand is there, they will step up to e.g. 600/week. In the meantime, there will still be a waiting list to get the car.
In terms of demand generation, the important thing is to deliver the first cars to as many of the targeted geographies as possible, so you get the "customer sells cars" effect going in each. That is why deliveries to various EU and Asian markets are important.
This makes sense to me. It is hard to achieve high efficiency if your production rate keeps fluctuating. You want there to be a routine every week - the same number of components coming from the various suppliers, the same number of people showing up to work regular hours, the same cadence of vehicles moving through the various stations, the same number of vehicles going through various stages of delivery. This is the only way to achieve 25% margins in Q4.
The alternative would be to try to vary production to match demand, i.e. using temps and overtime, and asking suppliers to ramp up. However, this would lead to higher unit costs both within Tesla and at suppliers. Getting lower prices from suppliers' efficiency improvements is a key part of getting to 25% margins.
I am sure that they are in parallell planning for a step-change in production rates. What I guess they will want to wait until they have "probed the depths of the demand" (or whatever the Elon quote is). Once they have good certainty that the demand is there, they will step up to e.g. 600/week. In the meantime, there will still be a waiting list to get the car.
In terms of demand generation, the important thing is to deliver the first cars to as many of the targeted geographies as possible, so you get the "customer sells cars" effect going in each. That is why deliveries to various EU and Asian markets are important.
The Netherlands also has fiscal circumstances favouring the Model S. It's the second European market behind Norway, even though it only has 17 million inhabitants (Germany 80 million, UK, France and Italy 60 million). Half of the new cars sold here every year (total on average 500,000) is a company car. They are being paid for by employers for their employees or by business owners for themselves. The Model S has several advantages (and others EV's as well)
As a company car:
- The drivers of company cars are being taxed on the basis of the value of the car. For instance: for a big engine BMW this is 25%, for a small engine BMW 20% and for a Prius 14%. This means you have to add, every year (!) again, 25, 20 or 14% of the value of the car (MRSP!) to your income and pay taxes on that amount, usually 40 to 52%. So for a BMW 5-series costing €80,000-90,000 you will have to pay about €10,000 extra, every year. For EV's like a Volt, Leaf or Model S you can add 0% of the value! Next year this will become 7%, but it's still much better than an ICE.
- The business buying the EV gets an extra 36% business tax deduction on the investment.
As a company car or private car:
- The owner of an EV pays no road taxes until January 1, 2014 (saving approx. €800-1000 per year). After January 1, 2014 the road tax system will likely become CO2-related (at the moment it is weight related).
- For most cars with petrol and diesel engines you have to pay a CO2-tax on purchase, which can range from just a few hundred euros for small cars to tens of thousands (!) of euros for big gas guzzlers. For EV's there is no CO2-tax in purchase! This is comparable to the Norwegian system, but less extreme.
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lolachampcar
Well-Known Member
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I'm very excited to see what demand will look like from Asia in the coming years, especially interesting to me is China with it's properties: an extremely large population, rapidly growing economy with a rapidly growing middle- and upper middel class and a situation where I would think quite a lot of people will be faced with the decision to buy their first ever automobile in an era where EVs (with Tesla in a superior lead) are really giving the traditional ICE's a run for their money. Also, it's in Chinas interest to go through the fossil fuel phase of their economic growth as quickly as possible (there is not cheap and abundant oil and coal nowadays as there was before, China understands that they are in a position where they can tip the scales the wrong way on the global eco system and if they do they're going down with the rest of us). The infrastructure is not there for large parts of the country, niether for fossil fules nor electric infrastructure but in the coming 5-10 years I would not be surprised if there is an official push towards electric transport in China.
This is another great post on why things look so bright for Tesla in Europe. Especially Norway.
This is wishfull thinking of course, but it does make lots of sense.
Norway does have a few factors that make selling the Roadster a lot easier than than in the US, and then I'm talking on price alone.
We have cheap hydrobased electricity, our gas costs as of today 7,86$ / gallon and some very expensive car tolls.
I'll do an example, take the basic price of the BMW Z4 Roadster 3.0si manual costs 126 409$ and out of that you pay 61 786$ in sales tax and "registration fees and tolls". The sales tax is 25% and is based on basic price while the registration fees are based on weight, power and CO2 emmision. And now comes the interesting bit. Electric cars are exempt from the sales tax as well as the registration fees. This means in theory if you take US sale price of Tesla Roadster they should sell close to the 100k$ mark maybe around $110k. And that is comparing to a more modest roadster like the BMW mentioned above, for fun use this calculator to check out the total price in NOK for cars. http://www.dinside.no/php/art.php?id=104524
(Bilens nettopris: = car retail price excluding taxes, Bilens alder: = car age, choose "Ny bil" for new car, Egenvekt: = weight in kilos, Motorens effekt: = engine effect in hp=hk or kw=kw, CO2-utslipp: = CO2 emmisions, "= Total kostnad inkl. kjøp av bil:" = total cost of car in NOK at car dealership. Currently 1$ = 5.922NOK)
Thought you guys might get a kick out of this...
Cobos
Finalize in Norway seems to be trackable by the invoice number that is generated once you click "Finalize" here. The highest number reported so far is 1004, which means that we have passed 1000 Norwegian orders finalized.
Finalize came to Norway 6-7 weeks ago, and was rolled out slowly in the beginning. As far as I know, most people who have put down a deposit have received the button. However, many are still in the 30 days' period. This gives reason to believe that the number will keep growing at a good pace the next couple of weeks.
Finalize came to Norway 6-7 weeks ago, and was rolled out slowly in the beginning. As far as I know, most people who have put down a deposit have received the button. However, many are still in the 30 days' period. This gives reason to believe that the number will keep growing at a good pace the next couple of weeks.
marvinat0rz
Member
Norwegian here. I think the biggest risk in Norway is how the car handles the cold and wet climate, both short-term and long-term. This is one of the harshest car environments in the world. But with regards to demand, the tax incentives makes it a very lucrative car. As one of our financial papers said, "An executive-class electric car" which costs the same to the company as a Toyota Auris. I think a lot of people are going to want these.
I also see Nissan LEAFs whereever I go in town (I live in Bergen), so I think this will be a very good market for Tesla. Even without the huge range and excellent engineering of the Model S, Norway is a very good place to be selling electric cars.
I also see Nissan LEAFs whereever I go in town (I live in Bergen), so I think this will be a very good market for Tesla. Even without the huge range and excellent engineering of the Model S, Norway is a very good place to be selling electric cars.
lolachampcar
Well-Known Member
When a transportation product is designed (airplane or car) all extreme environments are considered.. for temperature, salt, salt-fog, dust, vibration, humidity, UV, pressure environment, etc. Operational ambient temp range for designs is typically -20 to 120 degrees for cars. I would not doubt the low temperature extremes have been met for the batteries in analysis and test, continuous for at a period of time/cycles. This would be a HUGE technical risk going forward without that confidence just in so many parts of the US market, let alone Europe, etc.
Unfortunately, in the history of climate change, Norway will not be remembered for this. We will be remembered as a country that - at a time when it was clear that 70% of identified fossil reserves need to stay in the ground - were drilling and pumping oil and gas as quickly as humanly possible. :-(
marvinat0rz
Member
I have to pragmatically agree with DonPedro here. We tax cars heavily (partly because of the environment, but mostly because taxes are high in general here), but we also try to get the oil and gas out of the North Sea seafloor as quickly as possible. Any real environmental advantage from taxation and incentives is killed many times over by the petroleum industry (which I'm currently trying to get into, by the way 
)
)A piece of the puzzle in terms of figuring out the total demand picture: Based on sequential invoice numbers, we know that by the end of last week there were at least 1,128 finalized and signed orders in Norway.
Based on this, I would guess that Norway will account for around 2,000 orders this year, or ~10% of the total. This is based on the Norwegian orders being approx. 30% of total EU, which indicates a run rate of new orders of around 3 per day. Then I assumed that this figure will double in September, when the first cars have been on the streets here for a month or two.
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By the way, Elon Musk's demand figure of 5,000 in Europe for 2013 sounds conservative, doesn't it? At present, there should be around 4,800 reservations here already (3,900 regular, 500 sigs and 400 roadster-owners). Assuming reservation rates do not decline but remain at ~10 per day, that means we could have almost 7,000 reservations by year-end. But maybe they expect to deliver 5,000 and enter 2014 with a EU backlog of 2,000?
Based on this, I would guess that Norway will account for around 2,000 orders this year, or ~10% of the total. This is based on the Norwegian orders being approx. 30% of total EU, which indicates a run rate of new orders of around 3 per day. Then I assumed that this figure will double in September, when the first cars have been on the streets here for a month or two.
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By the way, Elon Musk's demand figure of 5,000 in Europe for 2013 sounds conservative, doesn't it? At present, there should be around 4,800 reservations here already (3,900 regular, 500 sigs and 400 roadster-owners). Assuming reservation rates do not decline but remain at ~10 per day, that means we could have almost 7,000 reservations by year-end. But maybe they expect to deliver 5,000 and enter 2014 with a EU backlog of 2,000?
CapitalistOppressor
Active Member
What is interesting about this, is that Norway is the most important market for the Model S outside of California. Tesla will have a huge incentive to re-engineer the car for cold weather driving. As it is, hundreds of Model S's had an acid test in the Northern U.S. and Canada, so you will already be the beneficiary of lessons learned, and Tesla will be able to continue to build off of that as they get more cold weather experience.
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Tesla will have to hustle to get 5,000 European sales this year. My projections show them making it, but an important factor to consider is cancellations. Europe doesn't have large numbers of multi-year reservations waiting to be canceled like the U.S. did, but there should still be a fair number of them going forward.
The main issue that I see, is that the underlying reservation rate is just so/so. Over the weekend I did research on the European stores and I came away somewhat unimpressed in comparison to how the operation in the U.S. is going. Several are just a contact number where you can arrange a test drive. None appear to be in areas where you should expect foot traffic compared to the mall locations they have in the U.S.
My first pass takeaway is that Tesla must be more hopeful than confident when it comes to European sales in 2014. Just because the Model S is poised to be a huge success in the U.S. doesn't mean it will immediately translate to success in other markets. If Tesla can't find a way to get millions of people into their showrooms as they have in the U.S. then they need a different strategy, or else they need to hope that U.S. attitudes influence consumers in the rest of the world. Otherwise it looks like they are in a for a slow grind in the E.U. where they rely almost exclusively on favorable press and word of mouth from owners.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
I think you are mainly right about this. The Tesla store in Oslo has no chance of drop-in foot traffic, it's some hundred metres off from a large mall, but it's neighbor is a show room for kitchen furniture. Anyone who comes there has looked up the adress before hand and goes there with an intention. I think Tesla just had to scramble a bit and establish a presence. However, come the start of EU deliveries and real cars on the streets especially in Norway, the Netherlands and Benelux, I think we will see Tesla occupying first grade real-estate in high traffic malls and high streets etc. already in 2014.
EU reservation number 4,147 was just reported in Norway. This means 644 reservations since the last report on 4/22, i.e. 15.0 per day. This is approx. 50% higher than the Q1 run rate, and translates into a demand run-rate of close to 5,500/year in Europe.
Combined with Elon's info about North American demand, this means that current orders are coming in at an annual rate of 25.5k. Excluding Asia.
I think this is above expectations. I am wondering how they are going to handle this. My $0.02 is that they will let the backlog build up again. The plan is clear: They want the first shift to build the cars at maximum efficiency (i.e. 25% gross margin, all stations using only one shift) before adding the second shift. This is also a practical issue: If some stations are currently working two shifts to supply 400/year, it is not possible to double the production (no such thing as four shifts).
The current backlog in Europe is approx. 5,000 reservations (less cancellations maybe 4,200 cars.) If reservations continue at 15/day, that means 7,345 EU orders by end of year. June-December production of 200/week can deliver 6,000 cars, so expect EU backlog to be around 1,500 at the end of the year. This, of course, assumes that EU deliveries do not generate a demand increase.
In the US, reservations may keep coming in at ~386/week, whereas production rates may be around ~417. When 200/week start going to Europe, this means that the backlog will build by around ~170 per week. So the potential end-of-year backlog in the US is around 5,000 orders.
They have also mentioned 1k Asian deliveries this year. Will that just be an end-of-year 1k backlog?
Clearly if this is correct, they would of course want to increase production ASAP. But as explained above, they really want to nail the one-shift production before going beyond that. Maybe the one shift can go beyond the 21k/year volume?
Combined with Elon's info about North American demand, this means that current orders are coming in at an annual rate of 25.5k. Excluding Asia.
I think this is above expectations. I am wondering how they are going to handle this. My $0.02 is that they will let the backlog build up again. The plan is clear: They want the first shift to build the cars at maximum efficiency (i.e. 25% gross margin, all stations using only one shift) before adding the second shift. This is also a practical issue: If some stations are currently working two shifts to supply 400/year, it is not possible to double the production (no such thing as four shifts).
The current backlog in Europe is approx. 5,000 reservations (less cancellations maybe 4,200 cars.) If reservations continue at 15/day, that means 7,345 EU orders by end of year. June-December production of 200/week can deliver 6,000 cars, so expect EU backlog to be around 1,500 at the end of the year. This, of course, assumes that EU deliveries do not generate a demand increase.
In the US, reservations may keep coming in at ~386/week, whereas production rates may be around ~417. When 200/week start going to Europe, this means that the backlog will build by around ~170 per week. So the potential end-of-year backlog in the US is around 5,000 orders.
They have also mentioned 1k Asian deliveries this year. Will that just be an end-of-year 1k backlog?
Clearly if this is correct, they would of course want to increase production ASAP. But as explained above, they really want to nail the one-shift production before going beyond that. Maybe the one shift can go beyond the 21k/year volume?
Hi Don,
Re: Europe, looking back a month doesn't tell the whole story. The rates are quite bifurcated intra May. From 04/22 - 05/22, reservations ran 12.5 / day. Then they started spiking from 05/22 - 05/31 to 22/day. The average over your period may be 15, but it begs the question of whether 12.5 / day or 22 / day is representative of run-rate orders. Tesla did some advertising about tax savings for 2013 deliveries to pull forward orders, so it will be interesting to see if the rates observed later in May persist or drop.
Re: US, curious how you come up with 386/week figure since sequences numbers were stopped a while ago?
Good points, and I agree. We do not know what the long term EU reservation rate is, so all of this is quite speculative. However, there are reasons why it should soon be growing rapidly even beyond 15 or 22 or whatever the rate per day is now: (1) Opening of many new stores, (2) increasing press coverage and (3) first deliveries to an area tend to generate much additional demand.
US: Elon Musk said they are receiving orders at 20k/year run rate. 20,000/52 = 385 per week. (I don't know how that became 386 ;-))
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adiggs
Well-Known Member
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