Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Zaxxon]

I just feel bad for investors that bought calls, are on margin, or bought options.

Never feel sorry for them. That's called gambling. (And I'm occasionally one of them, so don't take this as me ragging on them.) Tesla's concern is to accelerate the advent of sustainable transport, not to make financial decisions based on what's best for option holders.

Screw profits. Tesla needs to continue stealing market share. This is how they win long term. Wall Street doesn’t seem to be appreciating a profitable Tesla anyway

This. They are late getting to $35k. When they decide they can take a measured step toward that goal, they should do it. After this latest cut, the base MR is in Camry territory here in CO after the current fed/state tax credits. And this for a 260-mile 3 with PUP. It demolishes the Camry. It's also more difficult for SR waiters to hold out, given we're now less than $8k from the true base, but with PUP, 40 additional miles of range, and $1875 more tax credit than SR will qualify for.

Keeping this pricing pressure on their competitors is wise, IMO.

 

[Mark's Beagle]

The new $42.9k price point pulls yet more SR waiters off of the fence & lets Tesla see how soon they need to introduce a $40k (or maybe $39k) SR + PUP, and how soon they’ll need to introduce the $35k option. If they can maintain margins because of the elimination of the referral program, why wouldn’t they?

Nothing wrong with moving down the price - demand curve per se - but if you claim you are production constrained it doesn't fit. If I claim there's enough people to buy 5000/week of $50k + Model 3, why would I drop the price and lose 5 million bucks a week of profit?

 

[EVNow]

S&P 500 inclusion will burn away a good chunk of the FUD / short-selling media. As I've recently found out personally, the negative media tends to be what a good number of what non-Tesla enthusiasts remember about Tesla. Those people would otherwise be very open to buying a Tesla or other EV.

This is absolutely true. Many of my friends have said as much - they would have bought Tesla, but they read somewhere it is going bankrupt.

 

[mongo]

Nothing wrong with moving down the price - demand curve per se - but if you claim you are production constrained it doesn't fit. If I claim there's enough people to buy 5000/week of $50k + Model 3, why would I drop the price and lose 5 million bucks a week of profit?

if dropping the referral program saves more than the $1,100 reduction per car, then both Tesla and future owners benefit. It will also reduce complaints that the price should drop because there aren't referral prizes to pay for...

 

[Webeevdrivers]

Is this price reduction only for US or for EU & China as well ?

If its just US, the effect is much smaller.

CANADA dropped 1500 Canuck bucks.

 

[EVNow]

Amazing. If my business was truly "production limited", I wouldn't be reducing prices.

Since you just joined on Friday - can you tell us what brought you here ? Are you a TSLA investor or are you a short ?

 

[StarFoxisDown!]

Yes - Musk should set that expectation - clearly showing Amazon as an example. Otherwise we'll have this weird post ER drops.

They should have a goal of some 50M profit and manage finances to hit that.

This......I would have loved for Tesla/Elon to have said on the Q4 earnings "Once we reach our margin target for Mid-Range and Long-Range, any extra savings will be passed to the consumer". That way there is clear messaging and expectations. I'm sure the media will still try to spin it some but at least there's messaging from the start.

 

[dc_h]

Just to be clear, I'm not disagreeing with you about the fact that a tiny profit or no profit matters or that Q1 in the long term won't matter. I just feel bad for investors that bought calls, are on margin, or bought options. Tesla could have easily waited until after Q1 earnings to do this since there isn't any demand issue forcing them to.

Also pretty sure the price drop is only for US and since I expect them to only sell 25-30k in the US for Q1, the cost to Tesla is more like 28-33 million. Someone can correct me if I'm wrong though about it being only for US.

I think this is like the feds dual mandate. Tesla needs to stay modestly profitable, so they are cutting costs and driving productivity harder then they ever did before. The profit issue is to avoid capital markets and the weakness it engenders when they have to sell the company to Wall Street. This isn’t just a cash flow thing, it means they can focus on long term goals and act like a private company.
The other mandate is max growth. This has a lot of affects and demands. If they pressure suppliers on price and don’t increase sales, they’re just weakening the suppliers and don’t get long term buy-in. Every time Tesla lowers prices it increases demand and helps them drive demand higher which helps drive more demand. If Tesla pushes Panasonic to install more cell capacity they need to use that new capacity to help Panasonic get their return on investment. There are other suppliers that Tesla is pushing for cost reduction and giving up some minor profit to make sure all suppliers are running at capacity and getting ready to continue incremental growth.

 

[Steve m]

So it's really hard for me to figure out if this really a demand issue or just Tesla being philanthropic.

False dichotomy. Tesla could be cutting prices as it cuts costs to make it harder for competition to enter the market.

Long term thinking rather then quarterly thinking.

 

[StarFoxisDown!]

Guys, I get that lowering the price draws in a new groups of demand which then open up more demand by that group showing off their purchases. Again if Tesla had guided for production of like 100k Model 3's per quarter.....I'd be on board with this because production would be growing quickly. I'd say any savings they get should be instantly passed onto the consumer as long as they're hitting their margin targets. I get that more production would drive down costs in many ways.

My point is all Q1 production was spoken far already...before this price cut. Take the extra 30 million in profit and put it into R&D, more superchargers, whatever they want to invest in. But dropping the price and pushing that money to the consumer when you're already effectively sold out for the quarter makes no sense.

 

[EVNow]

My point is all Q1 production was spoken far already...before this price cut.

Not true. Not true for US/Canada.

 

[humbaba]

The new $42.9k price point pulls yet more SR waiters off of the fence & lets Tesla see how soon they need to introduce a $40k (or maybe $39k) SR + PUP, and how soon they’ll need to introduce the $35k option. If they can maintain margins because of the elimination of the referral program, why wouldn’t they?

$42.9k for MR w/ premium -> $37.9k for MR w/o premium. Okay, it isn't actually an option at the moment, but my point is that this is getting very close. Will the MR simply be rechristened the SR for a launch in the middle of the year? Given the pricing movement in January and now February, it doesn't seem that improbable.

While the pack costs were supposed to make that prohibitive, we don't really know what the pack costs are. I wouldn't even be entertaining the notion except for the $3.1k price reduction over a five week period.

 

[anthonyj]

Since you just joined on Friday - can you tell us what brought you here ? Are you a TSLA investor or are you a short ?

He makes fun of both longs and shorts. He brings up a decent point though (in a funny trolly way)

IMO Tesla is pulling a small demand lever, and also passing savings to the customer. It’s also putting extreme pressure on legacy manufacturers. Seriously, screw profits. Tesla can kick that can down the road as long as they have investor backing. Losing -700m a quarter was unhealthy but -50m would be fine for them as long as they are stealing market share

 

[EVNow]

Okay, it isn't actually an option at the moment, but my point is that this is getting very close. Will the MR simply be rechristened the SR for a launch in the middle of the year? Given the pricing movement in January and now February, it doesn't seem that improbable.

No way. They have to cut the cost for true $35k model. They could still do SR+PUP for $39k this way - potentially, with a more limited battery, for a few months.

 

[StarFoxisDown!]

Not true. Not true for US/Canada.

That'd maybe be a bit worrisome to me??? I think at least two thirds of Model 3 production is going overseas. I could see them producing about 75k Model 3's in Q1 which would mean about 25k Model 3 sales between Jan through end of March for Canada/US. I would certainly hope there would be demand for that many Model 3's before this price cut.

 

[Compton]

Not true. Not true for US/Canada.

Yep, delivery in March for new Europe orders and delivery in February for new US orders. Keep in mind though that Q1 is seasonally low and some markets like the UK and Australia are entirely untapped.

 

[EVNow]

That'd maybe be a bit worrisome to me??? I think at least two thirds of Model 3 production is going overseas. I could see them producing about 75k Model 3's in Q1 which would mean about 25k Model 3 sales between Jan through end of March for Canada/US. I would certainly hope there would be demand for that many Model 3's before this price cut.

I was only talking about "spoken for".

There is no reason to assume the price cut was to spur demand. It could be as silly as EM asking - "if the referral is costing that much, lets remove the referral and cut the price !".

The other thing to remember is - because of earlier backlash to cutting prices by people who just bought the car, Tesla might have decided to cut price in lean selling periods. This way there would be less backlash and they wouldn't have to reimburse a large number of buyers.

ps : I've to say, Tesla has managed to only sell higher priced 3s for a longer period of time than I'd imagined. That too at almost Toyota Corolla volumes at twice the price. That's no small feet.

 

[mongo]

$42.9k for MR w/ premium -> $37.9k for MR w/o premium. Okay, it isn't actually an option at the moment, but my point is that this is getting very close. Will the MR simply be rechristened the SR for a launch in the middle of the year? Given the pricing movement in January and now February, it doesn't seem that improbable.

While the pack costs were supposed to make that prohibitive, we don't really know what the pack costs are. I wouldn't even be entertaining the notion except for the $3.1k price reduction over a five week period.

To add to @EVNow 's comment:
From Q2 2018 conference call (from motley fool transcript)

Just having that very rapid iteration between design and production is incredibly helpful and we understand for example, what are the rate limiters, what makes it hard to produce battery modules. We came up with a new design that achieves the same outcome, that's actually lighter, better, cheaper and will be introducing that around the end of this year, probably reach volume production on that in Q1 or something. That will make the car lighter, better, and cheaper and achieve a higher range. That line is under construction, will be active in about six months..

versus the MR tweet:

It’s a long range battery with fewer cells. Non-cell portion of the pack is disproportionately high, but we can get it done now instead of ~February

 

[S3XY]

Uh oh, a real Tesla killer has arrived!

Clearly needs the Maxwell Ultracapacitor technology.

Here you go.

 

[StarFoxisDown!]

I was only talking about "spoken for".

There is no reason to assume the price cut was to spur demand. It could be as silly as EM asking - "if the referral is costing that much, lets remove the referral and cut the price !".

Sorry my bad....when I say spoken for I was talking more about sales that will happen. I guess confidence in that there wouldn't be any issues having that amount of sales? "Spoken for" was the wrong term to use.

And it could totally be Elon saying we saved this much, we're fine on margin....pass along the savings. I just wish that philosophy was communicated clearly. Using Amazon was a good example. You knew that they didn't care about profits and only cared amount market share....because they constantly communicated that, and communicated it very well. I'd love for Elon to come out on the earnings call and say "We're focused on being self-sufficient, maximizing our EV market share and EV market share in general by forcing our competitors to match our cost savings or risk losing customers"

I love the Amazon way for Tesla....they just need to make their messaging as clear as Amazon about their intentions.