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

[StarFoxisDown!]

Completely agree with all you say. Maybe cannibalize is indeed not the right word.

I think MY will undoubtedly impact M3 to some degree, but is it going to be effectively negligible, small, moderate? I don't know.

If the impact turns out to be non-negligible (not saying here it will be), Tesla has plenty of tools to deal with that, one of which is price adjustments.

But similar to what Rob and @troym said, I think it's too early to say. I think this price reduction is likely heavily influenced by having production > demand in the US in Q2 specifically, due to the lock downs and the batched production.

As the Model Y ramps up in US, China, and then in Germany, I see the extra margin from the Y being shifted to the 3 in the form of reducing the price some more later this year or mid 2021. If they can continually lower the 3 price over the next few quarters, they'll open it up to a much bigger consumer base that can guarantee demand for 250-400k Model 3's a year.

I think it's entirely possible that the 3 price cut just now is due to Fremont Model Y ramping in numbers. When Model Y China starts ramping, I see another price cut of 2k, and then when Giga Berlin ramps Model Y, another price reduction of 2k.

 

[MC3OZ]

Completely agree with all you say. Maybe cannibalize is indeed not the right word.

I think MY will undoubtedly impact M3 to some degree, but is it going to be effectively negligible, small, moderate? I don't know.

If the impact turns out to be non-negligible (not saying here it will be), Tesla has plenty of tools to deal with that, one of which is price adjustments.

But similar to what Rob and @troym said, I think it's too early to say. I think this price reduction is likely heavily influenced by having production > demand in the US in Q2 specifically, due to the lock downs and the batched production.

We also need to keep in mind reducing prices is consistent with Tesla's mission, and helps grow market share.

So if reasonable margins can be maintained reducing prices is not an overly bad outcome, and I think it is something Tesla knows they need to do.

Small regular price reductions that appear to be fully justified, are much better than sudden unexpected price reductions, and make it much harder for a competitor to have a better product at a better price.

IMO some Model 3 variants can be relatively immune to Model Y competition specifically the Performance Model 3, and the cheapest Model 3. The luggage carrying capacity of a Model Y really gives it an edge for family driving holidays..

I also think $5K is significant each $5K drop unlocks more demand, $50K, $45K, $40K, $35K, $30K, $25K, $20K... most buyers are going to nominate one of these numbers as their upper limit. Above $50K it is more complex, perhaps features are more important than price.

For a good car like a Tesla, buyers will exceed their upper limit, but getting close to their upper limit is a good starting point.

EDIT:: I also think multiple GFs really help margins, obviously cars made in China have a better margin which helps overall margins.. But production and logistics at Fremont is also simplified, which also helps..
Anything that helps margins, ultimately allows future price reductions..

 

[troym]

Yeah, agree with this. It's very difficult to sell all of the last 4-5 weeks of production to the US, even if order rate is healthy right now, because orders were likely very low for the first half of the quarter.

Although I don't disagree with you that the Y will cannibalize the other models to some degree, I think we'll have to wait to see the extent of it.

Completely agree with all you say. Maybe cannibalize is indeed not the right word.

I think MY will undoubtedly impact M3 to some degree, but is it going to be effectively negligible, small, moderate? I don't know.

If the impact turns out to be non-negligible (not saying here it will be), Tesla has plenty of tools to deal with that, one of which is price adjustments.

But similar to what Rob and @troym said, I think it's too early to say. I think this price reduction is likely heavily influenced by having production > demand in the US in Q2 specifically, due to the lock downs and the batched production.

Interestingly, Tesla chose to lower SX prices to revive demand rather than rollout the ever-imminent Plaid. I believe the latter would have led to accretion of gross margins instead of compression. I suspect this didn’t happen because a demonstration of Plaid will happen with the tba battery day.

I agree with the comments of others about pricing being fluid - Plaid will reverse these cuts and then some - and the ever lowering of M3 prices will open up new demand. However, I maintain that those who find themselves in the market for a cheaper Tesla will buy because it’s the only option for a great affordable electric, not for their love of sedans.

On another note, very low Euro sales in Q2 are going to have a major impact on credits. Anyone care to shed some light on to what extent? Isn’t the FCA deal related to units sold in the EU?

 

[StealthP3D]

Maybe cannibalize is indeed not the right word.

I think MY will undoubtedly impact M3 to some degree, but is it going to be effectively negligible, small, moderate?

Model Y will take sales from Model 3. But that's not to say Model 3 sales can't continue to grow even as Model Y steals some of the would-be Model 3 buyers.

The best situation for profits would be if a lot more people wanted the more expensive Model Y instead of the Model 3 because Tesla would convert Model 3 production lines to produce more Model Y's. The higher mix of Model Y's would result in higher profits. And this is the likely outcome since CUV's are so popular. I doubt if Tesla would wait for another factory to be built in North America to increase Model Y production when they could recognize the additional profits simply by converting production lines to make more Model Y's (until another factory is completed).

 

[StealthP3D]

Interestingly, Tesla chose to lower SX prices to revive demand rather than rollout the ever-imminent Plaid. I believe the latter would have led to accretion of gross margins instead of compression. I suspect this didn’t happen because a demonstration of Plaid will happen with the tba battery day.

Reducing prices and rolling out a new model are not comparable actions and it's not an either/or situation.

You can reduce prices in an hour. A new Model can take years (in total) to get to market. Tesla can do both things. The new model(s) won't be released until they are ready for release.

 

[Artful Dodger]

Anyone watched the Jay Leno's Garage Cybertruck episode?

I can't get CNBC live and haven't seen much posted or discussed...

Any potential stock-moving revelations or Elon quotes?

Sure, here's 4 clips that cover most of the Jay Leno's Garage episode w. Elon Musk:

Elon Musk has a Surprise for Jay Leno

Elon Musk and Jay Leno Talk About the 2020 Tesla Roadster

Elon Musk and Jay Leno go for a Spin in the 2021 Tesla Cybertruck

Elon Musk and Jay Leno Drive Through the SpaceX Boring Tunnel in the 2021 Tesla Cybertruck

 

[troym]

Reducing prices and rolling out a new model are not comparable actions and it's not an either/or situation.

You can reduce prices in an hour. A new Model can take years (in total) to get to market. Tesla can do both things. The new model(s) won't be released until they are ready for release.

Tesla wouldn’t have simultaneously announced Plaid SX and slashed prices on those newly announced models by $5k. (Elon tweeted last Sept that Plaid would cost more than current offerings but be less than competitors, presumably referring to the Taycan). There will always be demand for the flagship vehicles from price insensitive buyers.

 

[AZRI11]

I watched it. The whole episode was a great Tesla advertisement but I didn’t learn anything and don’t expect the stock to be moved too much other than maybe some more retail coming in. I love Leno as a human and I love cars....but regular television is awful. People watch this stuff? lol One more shark tank commercial and I was going to need a new TV.

Yes. Commercials ruin (almost live) television. Should be like YouTube (skip ads) feature

 

[StealthP3D]

Tesla wouldn’t have simultaneously announced Plaid SX and slashed prices on those newly announced models by $5k. (Elon tweeted last Sept that Plaid would cost more than current offerings but be less than competitors, presumably referring to the Taycan). There will always be demand for the flagship vehicles from price insensitive buyers.

Tesla hasn't yet released a price for the Plaid versions. So it's non-sensical to talk about slashing prices on new Models.

 

[CorneliusXX]

There's demand management and then there's a demand problem. Tesla is clearly doing the former, but I don't think there's the latter.

I think we are probably getting into syntax errors. I agree with your statement. It's the aurora borealis of demand "problems".

If Tesla had genuine enduring global demand problems we would see a different response than just trimming the price of a few models in a few locations. And we wouldn't be having this conversation as we would likely have sold our shares and moved on to something else.

The main reason for highlighting demand "temporary limitations" is because raising the topic is healthy as it provides insight into just how fast Tesla can grow and what factors can impact it. We now have a better understanding of what will happen should there be a second wave of COVID later on. The other reason for highlighting it is that it also counters a theme from many that demand is unlimited and inelastic.

For a thought experiment - as the effects of the COVID lockdown are in full swing, if Tesla could build twice the number of vehicles in the US this quarter it's clear that the local market couldn't absorb them at current prices. So, this quarter in the US at the previous prices, Tesla was not supply constrained. Local demand will increase again as the economy opens up.

Additionally, Tesla will be able to continually reduce prices as they progress along their own experience curves - but if they were doing it from a position of strength it would only occur once their margins were at the higher end of their desired goal of 25%-30%, which they didn't achieve in the last quarter and likely won't meet in Q2 due to reduced operating leverage. Price reductions in and of themselves are not a bad thing.

 

[RobStark]

EV Sales: Europe April 2020

 

[transpondster]

Here is a link to a technical deeper dive on CATL LFP and Tesla... JPR007 on Twitter

Mr Moneyball's conclusion was:-


.....

I'm not sure how anyone could put much weight on this analysis when nonsense like this are there:

To reach equal power, voltage needs to be increased to 400 V, i.e. 400 x 130=52 kWh. Number of cells is then 400/3.2=125. This is voltage platform in Model S, and I do not know if it can be applied to M3.

3 and (long range) S/X always had the same voltage from 96 cells in series with 4.2 max with nominal ~3.6

 

[RobStark]

Nissan to cut production capacity by 20% after suffering worst year since 2009 - CNN

Somehow I doubt future BEV programs will be spared in cost cutting.

 

[InDaClub]

Sure, here's 4 clips that cover most of the Jay Leno's Garage episode w. Elon Musk:

Elon Musk has a Surprise for Jay Leno

Elon Musk and Jay Leno Talk About the 2020 Tesla Roadster

Elon Musk and Jay Leno go for a Spin in the 2021 Tesla Cybertruck

Elon Musk and Jay Leno Drive Through the SpaceX Boring Tunnel in the 2021 Tesla Cybertruck

Here's another clip...

Viv on Twitter

 

[MABMAB]

Here's another clip...

Viv on Twitter

I want that truck!

 

[pyromatter]

 

[Artful Dodger]

Only 26,741 shares of TSLA traded at NASDAQ by 08:00 hrs (VWAP was $812.27). So another very light volume Pre-Market session so far as we look to close out this short week.

Cheers!

 

[jhm]

Cannibalise is too strong a word, newer cars put "margin pressure" on older cars..

I think Rob Maurer nailed it, newer cars are more in demand, and have higher margins, often because design improvements lower costs, that allows for some margin reduction on older models..

Next model up is Plaid Model S, which I also expect to have good margins..

Then Cybertruck, IMO one reason for the high Cybertruck reservation numbers is it represents great value for money.... Plaid Model S will not put "margin pressure" on older cars, but Cybertruck might... the good thing is Cybertruck is very different and is mostly competing in a different market segment...

In summary, I think Tesla can maintain good overall margins while occasionally dropping some prices.

I used to hate the word "cannibalize." It is often carries a negative connotation, as if a company does well to avoid it. But fear of cannibalization is the curse of a company that cannot innovate to save itself. Tesla is just the opposite. As Musk says, "In the long run only the pace of innovation matters."

If you are not cannibalizing your existing product line, you are not innovating fast enough. The rest of the auto industry will lose massive market share because they are too timid to cannibalize their their product line. They will lose market share to relentless innovators who wrecklessly make everything obsolete.

Elon is a prince among cannibals. May it be that the pace of innovation at Tesla is full cannibal.

 

[thx1139]

I have been wondering how with imminent battery day and presumption of big leap forward in battery tech which could mean longer range, extended battery life, etc. how would Tesla handle it with existing cars. Could the price cuts simply be to soften the blow for new purchasers. I mean after all they can now release versions of 3, S, and X with new batteries at higher prices. This way people who just ordered with older tech dont feel cheated. You also have the issue of people waiting for new tech if they dont release immediately. So have the older tech available and new tech comes out later at higher prices.

 

[Jack6591]

Elon should Randy for a ride and Randy should up date “I Love LA”