Ended up writing a long missive to Gali over on his latest Hyperchange video. I think it bears repeating:
------------------------------------------
Sigh... no, no, no.
I agree that Tesla could have communicated this better. But if I may - your understanding on this is completely off.
First off - and this can't be stressed enough -
Model 3 is not available in all markets yet . Any talk of "demand" when
not everyone can buy it - including me, I should add - is pure and unadulterated nonsense. Tesla is doing a
good thing by matching market availability to production rates so as to maintain steady, low wait times. I'll repeat:
this is a good thing .
Next, about the SR mix: Americans almost always do this annoying thing where they forget that there's a world outside America.
Only Americans and Canadians can buy SR . Tesla controls the percentage of the mix that's made of SR by controlling which markets can buy it. This is something which Tesla has
full and complete control over .
Third is the reason. Look at past InsideEV deliveries. Note the seasonal trends. Note how low the first two months of every quarter generally are, but how the last one is high. Do you know why that is? I mean, do you really grok it? You need to. Here's the answer: Tesla focuses on overseas deliveries early in each quarter, then domestic deliveries late in the quarter, in order to minimize inventory in transit. If Tesla wants to do this again this quarter, it needs a surge in domestic sales late this quarter. How do you do this? You introduce the SR.
Fourth: Yes, SR is positive margin. Read the leaked reporter call transcript. Musk repeatedly uses past tense to describe reaching profitability on it. The exact figure isn't stated. ReflexFunds has done some very good calculations that I tend to agree with arguing for somewhere between 1-7% margins. SR appears to be a software-locked SR+ and SR+ appears to be significantly more popular than SR, so that's a margin boost on all of those (before you start adding options, which are big margin boosters... e.g. EAP is pure margin, and seems to be getting a 30-40% take rate on the SRs. from anecdotal reports).
Fifth: Look at the VIN registration rates. Compare how fast they've grown compared to last quarter. VINs don't directly correspond to production, but they relate to it, and the registration rate is rocking it. Production is huge. Think back to the very first days of the Model 3 unveiling. Do we all remember the presentations? "There's global demand for 10k/week when the $35k car is in the mix" right? Perfectly reasonable numbers then, and still reasonable today. So what does this mean?
The closer we get to 10k/wk, the larger the portion for the mix needs to be SR . We can't keep putting this off. SR must be built , because we're on the upper end of the S curve.
This is something to celebrate .
This is a complicated topic. Doesn't fit nicely in tweets or reporter paraphrases of a brief call. It really could use a presentation (I tried to help by making an infographic -
https://twitter.com/enn_nafnlaus/status/1102712466813976576 ). But it is critical that investors understand the topic, or they're going to be wandering around like chickens with their heads cut off for no good reason.
This is essential and good for the company, and as per the plan .
A couple more things.
Sixth: I can't help but shake my head whenever I hear anyone describe this as some sort of "sudden decision". Really, a sudden decision? They developed capacity to mass produce a bunch of new model variants, suddenly? To mass produce new interiors, suddenly? The new website, suddenly?
Federal approval of new vehicle models, suddenly ? Is that what we think is happening here? It's nonsense; please, people,
think through these arguments before you make them . Tesla had to introduce it now, first off in order to get a surge of March domestic deliveries so that they can defocus from Europe and China and reduce inventory in transit, and secondly, it should be noted, because who would trust their Model Y pricing numbers if they hadn't met Model 3 price numbers yet? Should they have delayed Model Y? Of course not.
Seventh: About stores. And here's something I'm going to hate to say, but I'm going to say it: t
he shorts were right last year . Remember one of their constant criticisms of Tesla? "SG&A is too high." And it was. SG&A is wasted money. Even worse, there were long lead times - E.g. Tesla started building some stores over a year ago that are only getting completed just now. Tons of tied up investment. SG&A really needs to pay itself off. So... does it? We don't have that data - Tesla does. And they clearly think that they simply don't need this store SG&A except in the busiest of areas - that they'll drive a lot more sales by cutting prices 5-6% across the board (because savings help S&X as well as 3!) than they drive off. And honestly, I can't argue with this. Forget about Tesla's 7-day return "test drive" - who wouldn't choose to ask a friend or rent a car on Turo for a day as a test drive of a car they're interested in, if it means that the car is vastly cheaper? Yes, some people will be driven off. No question. But far more people who've been waiting for a low-cost Tesla - or even just a good affordable electric car in general - will now have the chance to jump in, when they didn't before. And if for some reason this situation needs to change in the future - say, half a year to a year down the line? *Tesla can start stores and/or traditional test drives back up*. And while they bear shutdown/startup costs, they've saved 6-12 months of operating costs, which is more than worth it.
Eighth: BREATHE, Gali.
You do this manic thing where you oscillate from super-thrilled to freaking out. That's not good for an investor. If there's something you don't understand... step back and talk to as diverse of a crowd as you can about it.
----------------------
