Predictions are never going to be fully correct but what predictions exactly do you have a problem with? Minor variations in quarterly profit or a few months shift in timing of events aren't significant in the long run, but most of the key changes at Tesla this year have been predicted by someone on this forum. Also, I rarely see people here claim to be certain of their predictions and they often offer alternative cases.
I'm sure Elon has made many bad decisions at Tesla, but many of the key decisions at Tesla are calculated risks; some work out well and some work out badly, but the outcome and consequent hindsight bias do not necessarily tell you whether the decision was good or bad and whether the risk was worth taking in the first place.
Many people here acknowledged there will be a significant reduction in weekly sales in the US this year if no demand levers are pulled, but also explained why this isn't a problem. I argued that Tesla already had the ability to launch the base SR whenever they chose from the start of this year (but this wasn't my base case, i thought leasing and SR PUP/MR non-PUP were more likely for now). Neroden has argued for a long time that Tesla should close it's store network. Many people here have said that Tesla could significantly reduce S/X pricing while maintaining gross profit through cost savings and mix.
On US demand after exhausting the firm order book in Q4
December 21st - "It shouldn't be a concern that Tesla nearly exhausted the near term order book for $46k+ cash sales models in the US. The fact that Tesla have persuaded c.150k people to trade up from a $35k reservation to a $57k average sales price is pretty spectacular, but they were always going to have to increase their addressable market size sooner or later.
To begin with, lease options generally increase demand 30-50% and is an easy move to increase demand for the current $46k product range in the US.
Tesla can significantly increase addressable market size again by launching in Europe and Asia. The European luxury market is 2x US and China EV market c.4x US.
They will also significantly increase the market size in the US by launching lower optioned cars. The US addressable market size roughly doubles for every $5k reduction in ASP. The cheapest model 3 is $46k currently but they appear on track to release options down to $35k in around 6 months.
So Tesla only need long term of 1-2k US weekly sales of the currently available $46k+ options to map to around 10k weekly worldwide sales across all models including lease option."
January 14th - "Looking just at Model S for now, I think Tesla can afford to reduce S100D price from $97k to $87k and PS100D from $135k to $130k while maintaining the Q4 average gross profit per car (which is higher than the current level post Jan price cuts). I don't think this will be enough to sustain demand at c.50k annually though, $87k is still a large step up from the Q4 $77k S75D base price.
The S100D price can be reduced further (probably to around $83k) if they introduce a new S120D top of the range option.
All of these estimates are without any cost savings from a move to GF1 cells or motors, either of which could help bring the pricing down while keeping a constant average gross profit per car."
January 23rd - "With the efficiency savings, Tesla probably only needs to sell 70-75k 100Kwh S&X at current pricing to make the same gross profit as 100k S&X sales in 2018 at the old mix. I think it is difficult to trade so many previous 75kwh buyers up in price so significantly though simply by removing the cheaper option. Tesla definitely has another move to make on pricing or refresh."
On ability to launch the base model already:
January 21st 2019 - "I estimate if Tesla ramped to 7k/week & opened orders for all options (including the $35k base) at the start of Q1, then Q1 model 3 gross profit would be down $30-40m & SG&A up $10-20m vs producing 5.5k/week with current available options.
...
There are a few reasons why Tesla is not releasing all car options immediately:
- Although Model 3 would be profitable on average, the unoptioned $35k would still be unprofitable at this stage, particularly outside the US without GHG credits.
- This could lead to negative profits in 1Q19 and 2Q19 (but likely still positive profits in 2H19 and positive for the full year).
- Delaying ramp to 7k/week buys more time to fix service business issues before ramping fleet size further.
- New AP3 hardware is due in March/April and Tesla may wish to wait for this to be ready before ramping production to 7k/week, to limit retrofits.
- It makes sense to save release of lower price options for the US tax credit step downs. This allows them to sell the narrative to customers/press that Model 3 has continued to get cheaper despite the tax credit cut."
Disclaimer on projections generally:
"Projections are by nature uncertain and without a doubt will be incorrect, but that doesn't make them useless. Best guess assumptions based on all known available data and that reconcile to previously reported accounts and future guidance are far more useful than saying the future is uncertain therefore there is no point trying to anticipate it. It is always worth stressing a model with changes to your key assumptions though, rather than believing in an arbitrary base case."
Key Model sensitivities:
"Key sensitivities to my $1,348m annualised net profit are:
· +- $1k Model 3 production cost for a $35k SR base Model 3: +-$331m annualised net profit.
· +- 10% Standard Range take rate: +- $166m profit
· +- 10% EAP take rate: +-$166m profit
· +-2.5k S&X deliveries per quarter (+-10k annual): $268m profit
· +- 1% Model S&X gross margin: +-$88m profit
· +-10% take rate for premium interior: +-$99m
· +-$20m Quarterly SG&A and R&D costs: +-$80m."
