I am always puzzled by the refrain that Tesla can sell any cars they make, no demand problem. The obvious fact is that demand has very high price elasticity, and Tesla will sell as much car as it can profitably. That means that Model S and x sold less than production capacity for a while. On the other hand demand was high enough that they could raise the price twice at the end of last year from $39k to $40K. There is no question that the recession hurt demand for big ticket items and especially for cars as people do not drive due to the pandemic craze. I do believe that the pandemic craze does hurt less Tesla than legacy makers, but it will hurt Tesla as well. Hopefully these price cuts will be sufficient to spur enough demand. Now it obviously hurts the bottom line, but my rule of thumb is that Tesla is able to reduce its costs by around 10% (yes, that is very high, and that is the most important thesis of my investment) so at these prices Tesla will still be profitable. Of course Tesla costs are reduced now not only because of its tech. and scale improvement but also because due to the recession even some basic material costs are down, e.g. lithium. So the fact that Tesla was forced to cut prices is not good news, but it was expected, and with Tesla's continous cost cuts that is still acceptable. Of course legacy makers are cutting their prices as well and their costs have not improved that much.
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Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable
- Thread starter AudubonB
- Start date
Artful Dodger
"Neko no me"
Yeah, I think your analysis isn't very quantitative. Let's consider the following case where Tesla drops Model 3 prices by 2% and increases production by 4%:
- Given Model 3 numbers from Q1/20:
- ASP: $51k
- Gross Margin: 22%
- Production: 7K/wk
- that implies $39.8 COGS per unit
- est'd 50% COGS as labor ($19.9k fixed expense)
- Now increase Model 3 production to 7,280 per week (4%)
- ASP: $49K
- Fixed labor cost decreases to $18.5k / unit
- COGS -$1,400 per Unit just due to labor productivity
- also decrease cost of Capital Equip. at higher run rate
It's a common planning figure in the industry that dropping prices 2% will increase sales by 4%. By walking down the ASP, Tesla is moving into Toyota territory, where the market is far larger. Tesla's backlog of orders grew in Q1. I believe their bottleneck will continue to be the ability to physically deliver their product fast enough. Korean and Taiwan will help this Quarter.
IMHO, shortzes are walking into it again.
Cheers!
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Correction: Tesla has dropped prices when they needed to increase demand (and increased prices when demand was high respectively). I.e. demand has a high price elasticity and Tesla tend to adjust price to balance supply with demand. Now they were able to drop price because of the lowered cost of production. Tesla's ability to radically acut costs is the key to be able to sell all the millions of cars per year that the various new Giga, and Tera factories produce. (Although Daimler and BMW used to be able to sell couple million cars for now at prices comparable to Tesla. I suspect they have less ability to cut costs.)You can not say what the effect on margins would be because you do no know the drop in the manufacturing cost of Model 3. Historically, Tesla has dropped prices in response to lowered cost of production, often splitting the difference between price to consumers and Tesla's bottom line. That is how Tesla keeps growing margins while lowering prices. The bonus is increased demand for its products, which is actually a demand multipler since most sales occur through word of mouth via existing owners. Not to worry.
willow_hiller
Well-Known Member
I saw this pop up on Reddit today as well. It's actually a rehashing of a story from March: Tesla Model 3 'Autonomous' Fleet Will Be Featured In Upcoming Film
It's not an autonomous trial, it was some third party filming a documentary about autonomous vehicles. And Tesla wasn't involved; the vehicles were all volunteered by their owners.
Cirrus MS100D
Member
It’s pretty neat looking, but as somebody on that thread pointed out, they’re all being manually driven. Anything that LOOKS “fully autonomous” is just a carefully crafted shot.
Another possible strategy is to produce the SR+ using cheaper lower energy cells as it has already been de facto announced for China with CATL.
TheTalkingMule
Distributed Energy Enthusiast
TSLA down 5 bucks in pre-market while DOW is up by 2x as much, but CNBC absolutely MUST include it in their "biggest movers" so they can highlight a perceived negative.
I wonder if we'll ever look back on this and laugh at the ability to straightup buy headlines.
I wonder if we'll ever look back on this and laugh at the ability to straightup buy headlines.
Zoox is desperate. Amazon is afraid of Tesla. What a perfect match
I don't know much at all about zoox, but Mike Cannon-Brooks (of Atlassian and tesla big battery fame) is a fan of them and has promoted them on twitter quite often.
The combination of him and Bezos (neither having a track record of stupid mistakes) having an interest in the company gives pause for thought - even if Tesla is likely far ahead.
Even Elon has said that Tesla will not be the only company that eventually succeds with FSD. Perhaps Amazon with their unlimited money, large investment in EVs and large fleet of transport vehicles that need to be automated will be an eventual competitor in the space.
That would go against Elon's word about increasing value of Autopilot.
jhm
Well-Known Member
As Tesla ramps up production of Model Y, trimming back the prices of Models X, 3, and S should be no surprise. Indeed, the very best outcome for Tesla is that apart from prices cuts, the Model Y cannibalizes all prior models.
Consider the alternatives to cannibalization.
Also keep in mind that when Tesla whacks $5k off of the Model S and X, this means that direct competitors to these models must also cut prices or continue to lose sales. So Tesla is inducing margin compression in its competitors. This margin compression could not come at a more lethal time when ICE market has been imploding. Tesla can ride its own experience curve to lower total manufacturing costs, but its ICE competitors do not have comparable opportunities to cut their costs. So price erosion leads directly to margin compression. This is how Tesla sucks the life blood of profitability out of its competitors.
Cannibalization means Tesla is destroying the competition.
Consider the alternatives to cannibalization.
- Tesla fails to bring forward a new model.
- The new model is not compelling enough to disturb the balance of demand for other Tesla models.
- The new model is a big enough advance that it not only disturbs demand for other Tesla models, but disrupts demand for many competitor models.
Also keep in mind that when Tesla whacks $5k off of the Model S and X, this means that direct competitors to these models must also cut prices or continue to lose sales. So Tesla is inducing margin compression in its competitors. This margin compression could not come at a more lethal time when ICE market has been imploding. Tesla can ride its own experience curve to lower total manufacturing costs, but its ICE competitors do not have comparable opportunities to cut their costs. So price erosion leads directly to margin compression. This is how Tesla sucks the life blood of profitability out of its competitors.
Cannibalization means Tesla is destroying the competition.
Artful Dodger
"Neko no me"
Tesla doesn't sell lower-quality products. Panasonic is the exclusive supplier for NA production for a reason: Tesla can insure the quality and exacting specs in-house.
Ever wonder why exactly ZERO battery fires have occurred in NCA 2170 powered cars?
Q.A. is why. Further, Panasonic has publicly stated they are willing to expand 2170 production to 54GWh/yr, after reporting profits from their NA manufacturing operation.
Where in any of this do you imagine a "possible strategy is to produce the SR+ using cheaper lower energy cells"
For GF3, ask yourself why Elon earlier rejected using LG Chem 2170 cells? He said "close is not good enough" (Jan 2020 3rd Row Podcast). BTW, it is NOT confirmed that LFP will be used in the MiC Model 3. This is continued speculation and mostly uninformed at that, by intensely non-technical reporters. To use the colloquial, these people don't know *sugar* from shinola. Take their word at your peril.
Cheers!
P.S. "that's why your shoes don't shine"
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Once Karpthy gets FSD working, he will move on to the much harder problem of Tesla price adjustments.
If he gets FSD working, then suddenly the problem of how much to charge for a FSD vehicle suddenly becomes a big problem.
Elon: OK so what should we price the vehicle at?
Andrej: My maximum profit model says $250,000.
Elon: Wow. That's crazy, but I trust science, let's go with it.
Andrej: Well I also ran some SimCity reinforcement learning simulations on what the consumer response would be. Every simulation ended up with consumer riots against Tesla, and we would have to move to Mars to survive.
Or we could just charge $20,000 for personal use FSD.
Elon: Hmm, tough choice...
Good questions. I believe that compared to other Bay area counties, Alameda has lagged behind on increased testing. If so then they may be trying belatedly to catch up.
Kindly next time try to refute the statement that I have actually made instead of making up one that I did not.Tesla doesn't sell lower-quality products. Panasonic is the exclusive supplier for NA production for a reason: Tesla can insure the quality and exacting specs in-house.
Ever wonder why exactly ZERO battery fires have occurred in NCA 2170 powered cars?
Q.A. is why. Further, Panasonic has publicly stated they are willing to expand 2170 production to 54GWh/yr, after reporting profits from their NA manufacturing operation.
Where in any of this do you imagine a "possible strategy is to produce the SR+ using cheaper lower energy cells"
For GF3, ask yourself why Elon earlier rejected using LG Chem 2170 cells? He said "close is not good enough" (Jan 2020 3rd Row Podcast). BTW, it is NOT confirmed that LFP will be used in the MiC Model 3. This is continued speculation and mostly uninformed at that, by intensely non-technical reporters. To use the colloquial, these people don't know *sugar* from shinola. Take their word at your peril.
Cheers!
P.S. "that's why your shoes don't shine"
Plenty of sources for the CATL Tesla battery deals with low energy density batteries for standard range. Tesla has already applied to Chinese authorities to sell these. Google is your friend. Cheers.
Tesla seeks China nod to build Model 3 vehicles with LFP batteries -ministry
Utter rubbish epidemiology
Elon's track record:
1) phenomenal cars (we own 2), likely equally phenomenal semi and Roadster 2
2) great home and residential solar systems (again we own two of those also) - #1 and #2 are major sign posts on the road to sustainable energy and transportation infrastructure
3) phenomenal SpaceX rocket company about to make history once again
4) solid plan for reopening of Tesla factories with covid-19 safety
5) lousy epidemiologist/ infectious disease specialist
Nobody's perfect, and four out of five ain't bad, but I'm disappointed that Elon has resorted to what are essentially conspiracy-theory level dismissals of the standard epidemiologic and biological science paradoxically the same kind of crap that he's had to confront for years in his attempts to build a sustainable transportation and energy infrastructure (that climate change is fake news, fake science, part of the deep state conspiracy, etc etc).
Billionaire Tech Geniuses don't like being told what they can't do so I understand his irritation, but I do not understand his departure from the science. Anybody that says that the IFR for covid-19 is the same as the flu simply doesn't know what they're talking about. That's not even debatable unless you're willing to entertain cooked statistics of the kind that the discredited Santa Clara antibody study generated. Outside of those fringe conspiracy-theory-like outliers, IFR is many times more serious than the flu. I love Elon, we love his cars, and Tesla products across the board, and we love what he's trying to do, but this one is disappointing.
PS for those convinced by the nonsense epidemiology quoted by Horowitz, please Google medcram covid-19 and look at the talks by a senior physician on the biology of covid-19 infection and how it's substantially differs from the biology of influenza infection. This includes lung and other tissue histopathology that shows why this disease is significantly more fatal. It takes a destructive commitment to polarisation and a certain level of real craziness to believe that this fundamental biological science is cooked up, or part of some kind of conspiracy to pull the wool over everybody's eyes.
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JusRelax
Active Member
Coronavirus is about twice as fatal as a seasonally bad flu i.e. one that appears every 5 years or so, although of course nowhere near as fatal as the Spanish flu from 1918, so in that aspect Elon is correct. And anyway, I think he is trying to make the point that life should go on as it isn't a big sci-fi like pandemic as people imagine. He is completely correct here. Never before has the whole world shut-down to prevent 82 year olds from dying! (average age of death from coronavirus in the US).
The damage from the shut-down could be way worse that the damage caused by the virus.
To get back to Tesla re. the price cuts today, this could be very good news or pretty bad news. If there is an announcement about battery day today then I would take this as good news that the new battery tech is helping lower prices. If no announcement, then probably there is (temporary) demand issue, which will last as long as there are lots of people unsure about their jobs and finances. Completely to be expected, although the question is how much of a temporary demand issue there will be, and how long will it last...
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