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Tesla's business plan: Riding on fumes

Discussion in 'News' started by NigelM, Sep 28, 2011.

  1. NigelM

    NigelM Recovering Member

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    CNN Money Fortune Report

    IMO, the article is much more balanced than the headline suggests:

     
  2. AnOutsider

    AnOutsider S532 # XS27

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    Pretty cool read (and video), thanks
     
  3. TEG

    TEG TMC Moderator

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    Yes, it seems like a generally positive article. I wonder why they picked the odd title.
    I imagine a different person (e.g.: editor) named the story than the one that wrote it?
     
  4. tdelta1000

    tdelta1000 Active Member

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    The title would suggests that Tesla Motors is in trouble but the article has a more reasonable stance. I still hold the belief that the Models S will be a success.
     
  5. Larry Chanin

    Larry Chanin Model S Perf Sig 1055

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    Hi,

    Interesting article. I find it rather unusual that Tesla would reveal their expected gross margins for the extra battery capacity models.

    Larry
     
  6. ckessel

    ckessel Active Member

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    Tesla has mentioned their expected gross margins a few times I think in conference calls.

    The article seemed reasonably valid, the title not withstanding. My biggest concern is Tesla over extends and goes bankrupt before getting a positive cash flow. I pretty firmly believe there's enough market for them to be profitable at some level. Elon has noted before that each division (Roadster, battery reselling) has been individually profitable, but the Model S R&D and manufacturing prep costs have put them way in the red. The Model S being profitable seems likely: at 15k profit per car * 20k = $300 million/year. But will it be enough to subsidize the big workforce they've got now for ongoing R&D on future cars? I've no idea.
     
  7. Lloyd

    Lloyd Active Member

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    I said this last year..... We need a "Available Cash Ticker, and Days to Release countdowns" on the home page of TMC. Much like the miles driven page on the TM site!
     
  8. NigelM

    NigelM Recovering Member

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    #8 NigelM, Sep 28, 2011
    Last edited: Sep 28, 2011
    One of the perils of being a public company. Margins are revealed to analysts and often during investor calls so sooner or later that information is going to make it's way into the press. Note that they always refer to "Gross Margins" so the entire story is not there; you just have to deduce the rest.

    Agree completely; the key is getting the Model S out on time.

    This would be an issue for any company; that's where the ATVM loans come in.

    Tesla would probably fall foul of SEC regs if they gave an exact launch date this early. I wouldn't expect them to give anyone a launch date until about 6-8 weeks in advance. With everything I have read, I expect that we will hear the phrase "early summer next year" this coming weekend. My forecast is that Sigs will be delivered from late-April thru mid-June.
     
  9. Larry Chanin

    Larry Chanin Model S Perf Sig 1055

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    Hi Nigel,

    What's particularly interesting in the following excerpt (below) from the article is that they seem to be confirming something I had wondered about, that the base model perhaps has little or no profit which is paid for by the substantial margins on the extra battery capacity models. In the second quarter 2011 Results - Earnings Call Elon just mentions a 25% target margin for the Model S. Here in this article the Tesla spokeperson seems to be singling out the upscale models with the extra battery capacity.

    Larry
     
  10. AnOutsider

    AnOutsider S532 # XS27

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    Larry,

    I wonder if that's an average? Like maybe the base model has something like 5% margin, 240 pack has like 20% and Sig/300 mile has like 30%. Average them out, that's 18% margin. Average just the top two and that's 25% margin
     
  11. TEG

    TEG TMC Moderator

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    I would think that is common in the auto industry in general. Offer a stripped down base model at a low price point with narrow margins, and then try to up-sell to most of the actual customers.
     
  12. NigelM

    NigelM Recovering Member

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    I believe the margin spread across the versions is somewhat flatter than you suggest, but you're right in principle. Analysts, and by the sounds of the article also Tesla, seem to feel that range anxiety is a consumer issue so they focus on the margins of the larger battery sizes as they assume that's where the volume is.

    The real question for consideration is: At what volume can these sort of margins be realized? Just the amortization of tooling parts makes auto manufacturing margins extremely sensitive to volume; the margins will only be achievable if minimum volumes are met without cost overruns and the higher the volume the better the margins. What are those minimum volumes? I'm sure Tesla knows exactly but I guarantee they rightly regard that as confidential information......Hence my earlier comment that we only ever are told part of the story regardless of which company it is.
     
  13. Larry Chanin

    Larry Chanin Model S Perf Sig 1055

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    Hi Nigel,

    Yes, the poll on battery size definately supports your point with the clear majority of folks opting for the 300 mile range batteries. I hope that when the cost of other options are released that this information won't erode the demand for the more profitable battery options.

    Larry
     
  14. VolkerP

    VolkerP EU Model S P-37

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    Margins on the larger battery pack sizes will increase in total (US$ 2,500) even if the percentage is all the same (25%). That's why it is of benefit for Tesla to sell the 300mi models first. But if the margin percentage is increased for the higher packs, I would feel "ripped off" by Tesla on buying one of these.
     
  15. NigelM

    NigelM Recovering Member

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    And they want to start with long production runs.
     
  16. AnOutsider

    AnOutsider S532 # XS27

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    That's not what I meant (I meant margin on the entire package of the higher end cars), but why would you feel ripped off? I would imagine the battery packs have a base price that doesn't increase proportionally as you add more -- so marking it up in exchange for the added value (more range) would seem to make sense. No worse than some of the "option packages" on other manufacturer's cars.
     
  17. ckessel

    ckessel Active Member

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    More mileage is added cost for low utility. The number of times you need those miles from 231-300 is very small, smaller than the times you need 161-230, and much smaller than the 0-160 miles used. You're already paying a premium for mileage you're rarely using and it'd make that ROI proposition even worse if Tesla gouged on the higher packs. That's not to say people won't pay it, range anxiety being what it is and early adopters not caring. I'm just saying that larger packs have a poor ratio of $ spent to utility gained.
     
  18. AnOutsider

    AnOutsider S532 # XS27

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    #18 AnOutsider, Sep 29, 2011
    Last edited: Sep 29, 2011
    Maybe for some, but I have zero doubt the 300 mile pack is what I want. I want to be able to stay overnight somewhere, I want to be OK if I forget to charge, I want to go far places, I want to have some reserve if we lose power etc. Personally, if I didn't go with the 300 I know I'd always think about that decision when it's time to top off (darn, could've gone a bit further if only....)

    Naturally it'll be different depending on the person, but for me it'd be absolutely worth the 20k upcharge. Heck, if I could get a 500mi pack, I'd go for that!
     
  19. Larry Chanin

    Larry Chanin Model S Perf Sig 1055

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    #19 Larry Chanin, Sep 29, 2011
    Last edited: Sep 29, 2011
    Yes, it will definately depend on the person. Someone stretching their finances to get a Model S in the first place would probably be strongly influenced if, to use your numbers, they knew that they were getting a mere 5% markup on the entry level model rather than a healthy a 30% markup on the 300 range model. The law of diminishing returns would certainly be a factor, both for dollars spent, and as ckessel points out, for diminishing utility of having long range capability.

    Larry
     
  20. ckessel

    ckessel Active Member

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    We're talking about two different things. I'm saying the larger packs have smaller $/mile gained. You're saying that extra miles have a high value, so for you, you'll get the big pack. That doesn't change the fact that the amount of times you use those extra miles is tiny compared to the early miles. You're getting lower utility for those extra dollars spent. Now, if for you it's still worth paying for those low utility miles, that's a separate thing independent from the pure $/utility equation.
     

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