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What If....?

Discussion in 'Model 3' started by N5329K, May 12, 2016.

  1. N5329K

    N5329K Member

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    Like most of you, I put down a $1,000 bet that the Model 3 will be built in the next several years. The delivery estimator Version 2.0 even says I'll get a car in early 2018 (can't wait for V 3.0). But a bet means there's a non-zero chance the car won't be built in a timely, affordable and profitable manner for Tesla. So, what happens then? Is the project pushed back until it can be built? Can the company afford that? If they can build it some time down the road, and if enough reservation holders stay with them, what will its (mostly hapless) competitors do in the meantime? If it can't be built (there's that non-zero chance again), what happens to Tesla? Does it continue as a niche automaker turning out modest numbers of expensive sedans and SUV's? Get bought up by a better-capitalized SV company named for a fruit? Or darkest of all, be acquired by a traditional carmaker, ruined and closed (Son of Saturn)?
    It's going to be a long couple of years for all of us, customers and company alike.
    Robin
     
  2. eloder

    eloder Member

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    I think you're forgetting that Tesla has the #1 selling high-end luxury sedan model for both North America and Europe at a 25%+ profit margin, and the Model X is ramping well enough to not be a big risk factor going forward.

    They would need reckless mismanagement, a severe black swan event like worldwide depression, or some other catastrophic event to have significant Model 3 issues. Given that Tesla and SpaceX survived through 2008--with basically no good income stream at all--I think they'll be fine.
     
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  3. JeffK

    JeffK Active Member

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    Planning for the model 3 and manufacturing costs have been given a lot of thought. The only thing you need to worry about is supplier delays. That's it. If a supplier is delayed and Tesla happens to be able to manufacture that part then you'd still see cars role out (at a likely slower pace).

    Elon Musk will personally move heaven and earth to get the Model 3 out in a timely manner.
     
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  4. Dan Detweiler

    Dan Detweiler Member

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    I am certainly no expert in corporate management or financial stability but it would appear to me that Tesla has passed a point of no return, as it were. It seems to me that the company has invested so much money and resources into going from a 30,000 car per year manufacturer to a 1,000,000 + car per year manufacturer that I think if this project were to tank they would be very hard pressed to recoup the capital losses they would find themselves with.

    Mind you, I don't think it is going to happen. I think Tesla is going to emerge from this a much bigger player in the automotive industry. However, I do see this as a make or break project for Tesla. So far, so good...

    ...keeping my fingers crossed and selling off my avatar to finance it!

    Dan
     
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  5. Jason Bourne

    Jason Bourne Member

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    I can't see any scenario in which Tesla just gives up on the Model 3. This is exactly what their mission statement has been all along: a sustainable energy car for the masses (granted, $35k isn't affordable to everyone, but certainly much more so than $80k). Maybe there'll be delays, maybe there'll be a higher price than announced. But it'll happen. And people will buy it. And Tesla will continue to innovate and create ways to make their next model even more affordable. And people will buy it.
     
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  6. N5329K

    N5329K Member

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    Dan:
    I have a Triumph, too. Hoping to keep it, though.
    Robin
     

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  7. Booga

    Booga Member

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    Let's clarify that this 25% number you cite has two caveats:

    1. It's closer to 22-23%. View the annual data here: Financial Statements for Tesla Motors Inc - Google Finance

    2. This is just the gross margin. Their profit margin is negative considering all of their other expenses including R&D and everything else going on at the company.

    What happens if they're delayed? It's simply that - they're delayed.

    I don't think a buyout from a firm like Apple or automotive competitor will happen at today's prices. If it was a $20 stock, then maybe, but not for $200+. At least, it's not likely, and in my opinion would require a board of directors that might not have their priorities very well thought out.
     
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  8. Dan Detweiler

    Dan Detweiler Member

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    Awesome!

    My TR6 is going to auction next week. We'll see how it goes but that will be about half of what I will be able to put aside for the Model 3. Hoping it adds up to a whole lot of upgrades! ;)

    Dan
     
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  9. WileyTheMan

    WileyTheMan Member

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    I'm not really worried. As others stated, Tesla has been successful (if not timely) in the delivery of their products and people have responded. I know they will do their best to stick with their time frames, but I have faith they will deliver the product they promised.
     
  10. ttupper92618

    ttupper92618 Member

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    #10 ttupper92618, May 12, 2016
    Last edited: May 12, 2016
    I share the view that a Tesla bankruptcy would be unlikely. However, I think you greatly underestimate the difficulty, and the costs, of what Tesla is now undertaking. The amount that Tesla will need to scale its infrastructure in order to produce 500K cars a year... is very significant, and impacts areas ranging across actual production facilities through supply chain management, personnel, and more. The expectation is that Tesla will do that all in approximately 1.5 years - 18 months. That is, in the most optimistic sense, an extremely challenging goal. It will require that literally billions of additional dollars be spent, and will require that all of these significant scaling efforts - efforts that impact virtually every area of the company - be executed to perfection, as many of them have interdependencies such that failure to make schedule in one will impact the rest. In particular, the GigaFactory is a huge unknown and a huge risk, since strong battery production rates there will be required in order for Tesla to be able to meet the demand and also to deliver the margins needed to be profitable. And as the GF is nowhere near finished, and as nobody has ever produced batteries at such a scale before... it has many, many potential failure points.

    And of course, all of this will require the investment, as I said, of billions of dollars in a very short time, which as it happens is greatly more money than Tesla has available to it in cash holdings and credit lines. That of course means they will need to sell bonds, have another round of equity offering, etc. The stock slide of late is at least partially reflective, I think, of the market pricing in the coming dilution of shares.

    Anyway, my point is that a sober look at this all is in order. That doesn't mean I'm droopy dog on this issue, that I think Tesla is doomed etc... it simply means that I think there are very significant risks and not being realistic about that is probably a bit naive.

    One final point: Tesla and SpaceX did both make it through 2008, but most people don't know how close both companies came to utter ruin. Tesla was technically bankrupt, and managed an additional finance round mere hours before being unable to meet payroll. SpaceX was within days of bankruptcy when it was saved by a NASA contract. Elon expended every effort to make both companies succeed, and took on enormous personal risk... and he deserves to be lauded for that. But there was some dumb luck involved too.

    Just my 2 cents worth.
     
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  11. Booga

    Booga Member

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    I would agree with you on this. Most automakers are on a 4-5 year lead when it comes to developing the next generation of cars. It's why it takes a while for new features to make their way into production.

    I bet Tesla has been working on the Model 3 for a good bit of time now, but the Model S and X did obviously require significant resources and so employees must have been preoccupied. Looking back, I wonder if they would have been better off without the Model X and rather just focused on the Model 3 even earlier.

    The amount of capital they intend to deploy over the next 2 years is extremely challenging. How do you go about investing billions of dollars in such a short time frame?

    Maybe they've had a lot more progress behind the scenes than we know about, and so that's where I could be wrong (maybe they were planning on a larger ramp up than they initially disclosed, partially to build excitement).
     
  12. JSBulmer

    JSBulmer Member

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    Another member of the red Triumph club. For me, its two of the 1968 GT6 MK I.

    jb
     
  13. Dan Detweiler

    Dan Detweiler Member

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    If you want another really nice one, the auction will be online soon!

    Dan
     
  14. 182RG

    182RG Free The Service Manuals From Tyranny

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    FTFY. Part 1 of the challenge.

    The Model 3 isn't an option for Tesla. It's a requirement on multiple fronts.

    - Volume across the manufacturing platform to cover fixed costs, R and D, etc.

    - Marketing more to the masses. The pool of buyers willing to spend $100K for a car is restrictive.

    - Threat of both luxury and non-luxury EV choices, at price points below the S and X.

    You can't be a niche manufacturer, and fulfill EM's mission without a vehicle at this price point.
     
  15. Booga

    Booga Member

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    Why is "getting people to invest" difficult? Any capital raise has challenges, but Tesla has one of the most accommodative valuations of companies traded today. It's not going to be an issue to get the money. To spend it and get a working factory in this short of time with suppliers lined up is another story though.
     
  16. 182RG

    182RG Free The Service Manuals From Tyranny

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    Let's hope you are correct re: capital. Also agree timelines are extremely short. If they can keep the element of needing to engineer solutions (think Falcon Wing Doors) out of the Model 3, they'll be much more successful lining up suppliers.
     
  17. JeffK

    JeffK Active Member

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    That's already been taken care of... It just that these are new parts so they need to make the dies and stuff.
     
  18. ttupper92618

    ttupper92618 Member

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    I'm not sure it is that simple.

    You are right that Tesla has a strong valuation... Actually, it has a valuation that is by most metrics significantly out of line with forward earnings estimates. That means that, even with the number of shares outstanding, investors are taking on an inordinate amount of risk for a given return... again, based on forward earnings estimates.

    The core issue is that in order to raise billions through an equity offering, Tesla will have to issue a significant number of additional shares. Doing that will dilute the value of the shares currently outstanding, which would theoretically drive the price of the equity lower. And since Tesla will need to raise significant capital, they will likely be selling these equities to well-capitalized funds as opposed to individual investors... and many of those funds may already own shares. The proposition that Tesla would be offering to them, then, is this: "Buy more of our stock, in exchange for a probable decline in the value of the shares you already own. It's not a very attractive offer. I'm sure I oversimplify here, but the point is that the appetite for more TSLA in the market may not be as guaranteed as you may think.
     
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  19. Skotty

    Skotty 2014 Model S P85

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    #19 Skotty, May 12, 2016
    Last edited: May 12, 2016
    Didn't the government just renew the loan program for advanced vehicles? Given the acceleration plan, I could now see Tesla potentially getting another loan through that.

    EDIT -- I could swear I saw a news article not long ago about the ATVM program being revitalized, but I can't find any information on it today. Regardless, I would think Tesla would get approved for a new loan for the Model 3 if they wanted or needed it. It's exactly the kind of thing the ATVM program is for.
     
  20. Waiting4M3

    Waiting4M3 Member

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    Didn't the Fiat CEO say that he can make an affordable EV in 12 months if Tesla can make $ on the model 3?
    Fiat Could Build Model 3 Rival in 12 Months Claims Its CEO

    if Elon “can show me that the car will be profitable at that price, I will copy the formula, add the Italian design flair, and get it to the market within 12 months.”

    If Fiat thinks they can do design and manufacture in 12 months, why can't Tesla? To me this validates that the timeline is possible as long as you have the resources for it. And Tesla,within 1 month of seeing the reservation #, has already updated their plan to address the resource issue. That is about as encouraging of a sign as any.
     

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